HSA Withdrawal Rules: How to Use Your HSA Funds Wisely

An HSA withdrawal occurs when you take money out of your Health Savings Account to pay for eligible healthcare expenses. These funds are used to cover a range of qualified medical costs, from doctor visits to prescription medications. The best part is that withdrawals made for qualified medical expenses are tax-free, making HSAs a powerful tool for managing healthcare costs efficiently.

For more information on how HSAs work and how to make the most of these tax advantaged accounts, head to our article, “How Does an HSA Work?”

To avoid penalties and taxes, HSA withdrawals must be used for eligible medical expenses as defined by the IRS. These can include:

• Doctor visits and copays
• Prescription medications
• Medical equipment like crutches or wheelchairs
• Vision and dental care

Beyond these conventional expenses, many everyday health purchases, like gym memberships, fitness equipment, and recovery tools, may also qualify when an independent licensed clinician determines they're medically necessary and issues a Letter of Medical Necessity (LMN).

To maximize the benefits of your HSA, it's important to understand the rules that govern withdrawals. Here are the key rules to keep in mind:

Withdrawals from your HSA must be used for qualified medical expenses to avoid taxes and penalties. If you use HSA funds for non-qualified expenses, you'll have to pay income tax on the amount withdrawn, plus a 20% penalty if you are under 65 years old.

It's crucial to keep all receipts and records of your HSA withdrawals. This will help you prove that the funds were used for qualified medical expenses in case of an IRS audit.

One of the great features of an HSA is that there's no time limit for reimbursing yourself for eligible medical expenses. You can pay out of pocket and reimburse yourself later, as long as you keep proper records. The one catch: the expense must have been incurred after you established your HSA. As long as that's true, you can let your HSA funds grow tax-free for years and reimburse yourself for an old qualifying expense down the road. To learn more about reimbursement flexibility, visit our How to Spend HSA Funds blog.

If you withdraw funds for non-qualified expenses, you will face penalties and taxes. Here's how it works:

• Under Age 65: If you're under 65 and withdraw funds for non-qualified expenses, you will owe income tax on the amount plus a 20% penalty.
• Age 65 and Older: Once you turn 65, you can withdraw funds for non-qualified expenses without the 20% penalty. However, you will still owe income tax on the amount withdrawn. For more information on avoiding withdrawal penalties, visit the IRS's Publication 969.

Withdrawals are only half the equation. How much you can put in shapes how much you'll have available to spend. For 2026, the IRS contribution limits are:

• $4,400 for individuals with self-only HDHP coverage
• $8,750 for those with family HDHP coverage
• An additional $1,000 catch-up contribution for account holders age 55 and older (who are not enrolled in Medicare)

These limits include all contributions from every source, including any your employer makes on your behalf. To contribute, you must be enrolled in a qualifying high-deductible health plan (HDHP). For 2026, that means a minimum deductible of $1,700 for self-only coverage or $3,400 for family coverage.

A noteworthy change for 2026: HSA eligibility has been expanded to include all ACA Marketplace Bronze and Catastrophic plans, opening HSAs up to millions more Americans who previously couldn't qualify.

Making an HSA withdrawal is straightforward. Most HSA accounts come with a debit card that you can use to pay for eligible medical expenses directly. Alternatively, you can pay out of pocket and reimburse yourself later.

• Debit Card: Use your HSA debit card to pay for eligible expenses at the point of purchase.
• Reimbursement: If you pay out of pocket, you can withdraw funds from your HSA later to reimburse yourself. Just make sure to keep all receipts and documentation.

After age 65, your HSA becomes even more flexible. You can continue to use your HSA funds for qualified medical expenses tax-free, or you can withdraw funds for non-medical purposes without the 20% penalty (although you will owe ordinary income tax, much like a traditional retirement account).

There's one important catch to plan around: once you enroll in Medicare, you can no longer contribute to an HSA (including the catch-up contribution). You can still withdraw and spend your existing balance, but new contributions must stop. Because of this, many people time their Medicare enrollment carefully to avoid unexpected contribution penalties. This combination of features makes an HSA a powerful retirement-planning tool, letting you cover healthcare costs tax-free while keeping the option to use funds for other purposes if needed.

At Truemed, we make it easy for individuals to use their HSA funds for eligible health expenses. From supplements, to red light therapy, to adaptive footwear and beyond, Truemed helps qualified customers save an average of 30% on preventive health tools.

Truemed* specializes in helping you maximize your FSA or HSA benefits. Here’s how:

• First, you can check whether a product or service is normally considered a qualifying medical expense or whether you might need an LMN.
• Complete a health intake survey that will be reviewed by an independent licensed clinician.
• Buy the item; either pay directly with your HSA/FSA card at checkout, or pay with a regular credit/debit card and seek HSA/FSA reimbursement afterward.
• The independent licensed clinician will review your medical history, and if you qualify, will issue an LMN. Truemed itself does not make eligibility determinations.
• Truemed also offers support in the event you get a denial of reimbursement and need to provide substantiation documentation.

*Truemed is for qualified customers. HSA/FSA tax savings vary. Learn more at truemed.com/disclosures