A Health Savings Account (HSA) offers unique tax advantages, but knowing the rules around withdrawals is essential to maximizing your benefits and steering clear of costly mistakes. Whether paying for a doctor visit today or planning for future medical expenses, understanding when and how you can access your HSA funds empowers you to use this powerful savings vehicle most effectively.

If you're new to HSAs or want a full overview of how they work, start with our comprehensive HSA Guide.

What Does It Mean to Withdraw from an HSA?

An HSA withdrawal means taking money out of your account to pay for expenses. This could include doctor bills, prescription medications, or, if you meet certain conditions, non-medical costs. Unlike transfers or rollovers, where funds move between HSA providers without tax consequences, a withdrawal removes money from the account fully and can affect your tax situation depending on what you spend it on.

Next: Once you understand what a withdrawal is, the next step is knowing which expenses qualify for tax-free use.

Qualified vs. Non-Qualified Withdrawals: What Counts as an Eligible Expense?

The IRS permits tax-free withdrawals from your HSA only for qualified medical expenses related to diagnosis, treatment, prevention, or care. This includes expenses for you, your spouse, and your dependents.

Common qualified expenses include:

• Doctor visits and hospital stays

• Prescription drugs and insulin

• Dental treatments, including braces

• Vision care such as exams, glasses, and contacts

• Mental health and therapy costs

• Durable medical equipment like crutches or hearing aids

To make sure your withdrawal stays tax-free, be sure to keep detailed records—like receipts, invoices, and explanations of benefits (EOBs)—even though you don’t need to submit them at the time of withdrawal. If you use HSA funds for a non-qualified expense, such as rent, groceries, or everyday personal purchases, the IRS will treat it as taxable income and apply a 20% penalty if you're under age 65. These rules are designed to protect the account’s tax advantages and ensure funds are used for eligible medical care.

What Happens If You Use Funds for Non-Medical Expenses?

Spending HSA money on non-qualified expenses comes with financial consequences. The IRS treats such withdrawals as taxable income, and, if you’re under 65, imposes a 20% penalty on the amount withdrawn.

Once you reach 65, you can still withdraw funds for non-medical reasons without penalties—though you will pay income tax on those sums, similar to a traditional retirement account. This flexibility after 65 makes your HSA a valuable supplemental savings vehicle for healthcare or other expenses in retirement.

Summary Table of Key Withdrawal Rules

When Can You Withdraw Money from Your HSA?

You can withdraw money from your HSA at any time to pay for qualified medical expenses—there’s no IRS-imposed deadline. As long as the expense is eligible and was incurred after your HSA was established, you can take a distribution whenever you choose. This strategy can be especially useful if you're investing your HSA balance or planning for large future expenses.

Just make sure that:

• The expense occurred after the HSA was established

• You keep thorough documentation to prove the expense was qualified

This approach can help your money work harder over time.

How to Access Your HSA Funds

Most administrators offer multiple convenient ways to withdraw money from your HSA:

• Use an HSA debit card at the pharmacy, clinic, or hospital

• Transfer funds electronically to your personal bank account when needed

• Pay bills directly through your provider’s online portal or app

Each method counts as a withdrawal, whether you're paying at the point of service or reimbursing yourself later. Some people prefer to keep their HSA growing by paying out-of-pocket first, then submitting for reimbursement later, especially if they invest their HSA funds.

Be sure to save receipts and itemized invoices for every transaction. You don’t need to submit them routinely, but you do need them for your records in case of an IRS audit or to verify that the withdrawal was qualified.

Managing Withdrawals from an HSA Investment Account

If your HSA has an investment account—like mutual funds or ETFs—you’ll need to take extra steps before you can withdraw the money. To use your funds, you must first sell your investments to turn them into cash. This is called liquidation, and it needs to happen before you can spend or transfer the money.

For example:

• If you have a $1,000 medical bill, you’ll need to sell enough investments to get that amount

• It usually takes 1 to 3 business days for the sale to go through

• Once the sale is complete, the money will be available to use

Planning ahead can help you avoid delays when you need to pay for medical expenses.

Withdrawals After Age 65: More Options and Strategic Uses

Turning 65 unlocks additional flexibility in how you can use your HSA funds:

• You can continue to make tax-free withdrawals for qualified medical expenses, including Medicare premiums (like Part B and Part D), long-term care services, and certain long-term care insurance premiums.

• You may also withdraw funds for any reason without a 20% penalty. However, if the withdrawal isn’t for a qualified medical expense, the amount will be taxed as ordinary income—similar to a withdrawal from a traditional 401(k) or IRA.

• Unlike those accounts, HSAs are not subject to required minimum distributions (RMDs)—the yearly withdrawals the IRS requires you to take from most retirement accounts after a certain age.

Because you’re not forced to take money out, your HSA can stay invested and keep growing tax-free until you choose to use it. That makes it one of the most flexible and tax-efficient savings tools available for healthcare and retirement planning.

Smart Ways to Use HSA Withdrawals Wisely

Knowing when and how to use your HSA funds can help you avoid unnecessary penalties and keep your savings working for you. These simple best practices can help you make the most of your withdrawals—both now and in the future:

• Keep detailed records: Store receipts, invoices, and explanations of benefits (EOBs) to verify expenses.

• Save and invest: Some people prefer to keep their HSA growing by covering expenses first and letting their savings grow tax-free

• Avoid unnecessary penalties: Don’t use your HSA funds for non-qualified expenses before age 65.

• Plan withdrawals strategically: Coordinate withdrawals with year-end tax planning or large medical bills.

Even small decisions—like timing your withdrawals around tax season or medical needs—can help you build long-term value. By staying organized and strategic, you can get the full tax benefits of your HSA while keeping your account compliant and efficient.

Even small decisions—like timing your withdrawals around tax season or medical needs—can help you build long-term value.

The Bottom Line: Making Your HSA Work for You

Your HSA is a flexible and powerful tool that lets you pay for today’s healthcare costs—or plan ahead for tomorrow’s. Whether you’re managing day-to-day medical expenses, investing for the future, or preparing for retirement, understanding the withdrawal rules helps you avoid costly mistakes and make the most of your account.

Keep good records, withdraw strategically, and know when to tap into your funds. That way, you stay compliant with IRS rules while maximizing your tax benefits.

Looking for an easier way to manage it all? Lively’s platform helps you track spending, investments, and more—all in one place. Contact our team today to learn how Lively can support your HSA strategy.

Disclaimer: the content presented in this article are for informational purposes only, and is not, and must not be considered tax, investment, legal, accounting or financial planning advice, nor a recommendation as to a specific course of action. Investors should consult all available information, including fund prospectuses, and consult with appropriate tax, investment, accounting, legal, and accounting professionals, as appropriate, before making any investment or utilizing any financial planning strategy.