Can I cash out unused HSA funds?

The smartest way to use a Health Savings Account (HSA) is to contribute the maximum amount, invest the funds for long-term growth, pay for today's medical care out of pocket, and save your receipts to reimburse yourself tax-free years later.

Read the T. Rowe Price Guide for more details on unlocking tax savings.

Understand the Triple-Tax Advantage

An HSA offers a rare triple-tax benefit for federal taxes:

• Tax-deductible: Money you put in lowers your taxable income right now. If you use payroll deductions, you also skip FICA taxes.
• Tax-free growth: Any money you invest grows without taxes on the gains.
• Tax-free withdrawals: You pay zero taxes when you take money out for qualified medical costs.

Max Out Contributions and Invest

Treat your HSA like a retirement account instead of a regular bank account.

• Contribute the max: For 2026, you can put in up to $4,400 for an individual and $8,750 for a family. People aged 55 and older can add an extra $1,000.
• Invest the balance: Do not let the cash sit idle. Move your funds into low-cost index funds or mutual funds so your money compounds over time.

Pay Out of Pocket and Save Receipts

This is the ultimate HSA trick.

• Pay for your doctor visits or prescriptions using your regular credit card or checking account.
• Keep digital copies of all your medical receipts.
• Leave your HSA invested to grow.
• Withdraw the cash tax-free years or decades later when you need extra money. The IRS has no time limit on when you must reimburse yourself, as long as you had the HSA open when the medical expense happened.

Use it in Retirement

Your HSA turns into a flexible tool as you age.

• After age 65, you can withdraw money from your HSA for any non-medical reason without a penalty, though you will pay ordinary income tax (just like a traditional IRA).
• If you use the money for medical care, it stays 100% tax-free.
• Unlike 401(k)s, HSAs do not force you to take required minimum distributions (RMDs).

Learn more about this strategy in the Fidelity HSA Insights.

The Health Savings Account (HSA) 13-month rule—officially known as the IRS Publication 969 "last-month rule"—allows you to contribute a full year's maximum amount to your HSA even if you were only enrolled in a High-Deductible Health Plan (HDHP) for part of the year.

How the Rule Works

• December 1 Eligibility: You must have qualifying HDHP coverage and be eligible to contribute to an HSA on December 1st of the tax year.
• Full Contribution: Instead of prorating your contributions by the exact number of months you were covered, you can put in the full annual statutory limit.
• The 13-Month Testing Period: You must remain continuously eligible for an HSA starting from December 1 of the contribution year through December 31 of the following calendar year (a 13-month span total).

Penalties for Failing the Testing Period

If you lose your HDHP coverage or become ineligible for an HSA (such as switching to a non-HDHP plan or enrolling in Medicare) before the 13-month window ends, you face penalties:

• Taxes Owed: The extra contribution amount that you wouldn't have been allowed to make under standard prorated rules is added back to your taxable income.
• 10% Penalty: You will also owe an additional 10% tax on that extra amount.
• Exceptions: The penalty and extra taxes do not apply if your ineligibility is caused by your death or total disability.

You can invest your unused Health Savings Account (HSA) funds like a retirement account to grow them tax-free.

What to Do with Unused HSA Funds

• Invest the money: Move your cash into stocks, bonds, or mutual funds inside your HSA once you hit the minimum balance required by your provider.
• Save your receipts: Pay for current medical bills with regular, after-tax money, keep the receipts, and withdraw the cash from your HSA years later tax-free.
• Roll it over or transfer: Keep the account forever, even if you change jobs or stop having a high-deductible health plan. You can also transfer your balance to a different provider like Fidelity HSA if your current one charges high fees.
• Use it after age 65: Withdraw money for any non-medical reason without a penalty after you turn 65, though you will pay standard income tax on those non-medical withdrawals.

Yes, you can withdraw money from your Health Savings Account (HSA) when you leave your job, but doing so for non-medical reasons may trigger taxes and penalties.

An HSA belongs entirely to you, meaning the funds remain yours to keep and use regardless of whether you quit, retire, or get laid off. What happens to your money depends on how you spend it:

Qualified Medical Expenses

• Tax-Free Withdrawals: You can withdraw money from your HSA completely tax-free at any time to pay for qualified medical expenses (such as doctor visits, prescriptions, dental care, and vision needs).
• No Time Limit: There is no expiration date or deadline to spend or reimburse yourself for medical costs, as long as the expense occurred after you opened the HSA and you keep the receipts.

Non-Medical "Cashing Out"

• Under Age 65: If you withdraw funds for non-medical or non-eligible expenses before you turn 65, you must pay regular income tax plus a steep 20% penalty on the withdrawn amount.
• Age 65 and Older: Once you turn 65, the 20% penalty disappears. You can withdraw money for any reason, but non-medical withdrawals will be subject to ordinary income tax (similar to a Traditional IRA or 401(k)). Withdrawals for medical care remain entirely tax-free.

Options for Your HSA After Leaving

Instead of cashing out and losing money to taxes or penalties, you can:

• Leave the account where it is: Let the balance continue to grow or use it slowly for future medical costs, though you may owe monthly maintenance fees if your former employer was covering them.
• Roll it over or transfer it: Move your balance via a direct trustee-to-trustee transfer into a new personal HSA or a new employer's HSA plan without any taxes or penalties.
• Continue contributing: You can only keep contributing new funds if your new health plan qualifies as a High-Deductible Health Plan (HDHP).

You can learn more about managing your portable balance through the Fidelity HSA Guide or review general rules on GoodRx.

The HSA 6-month rule is a planning guideline stating that you should stop contributing to your Health Savings Account (HSA) at least six months before applying for Medicare after age 65.

Why the Rule Exists

• Retroactive Medicare Coverage: When you delay signing up for Medicare past age 65 and later apply, the Social Security Administration can make your Medicare Part A coverage retroactive for up to six months (but not before your 65th birthday).
• HSA Ineligibility: You cannot contribute to an HSA while enrolled in any part of Medicare.
• Accidental Over-Contributions: Because your Part A start date can be backdated, any HSA contributions you or your employer made during those retroactive months become unauthorized "excess contributions" subject to a 6% tax penalty.

When the Rule Applies

• Delaying Medicare Past 65: It applies if you work past age 65, keep contributing to an HSA, and then apply for Medicare or start collecting Social Security later.
• Turning 65 On-Time: If you sign up for Medicare right when you turn 65, your coverage is not backdated past your birthday month, so the 6-month lookback rule does not apply. Instead, your contribution limit is simply prorated for the months you were eligible.

How to Fix Excess Contributions

• Withdrawals: If you accidentally contribute during the retroactive window, you must withdraw the excess amount and any earnings before your tax-filing deadline (including extensions) to avoid the 6% excise penalty.