Do you lose HSA money at end of year?
Asked by: Prof. Retha Hickle | Last update: October 9, 2025Score: 4.9/5 (2 votes)
What happens to my HSA at the end of the year?
HSA money is yours to keep. Unlike a flexible spending account (FSA), unused money in your HSA isn't forfeited at the end of the year; it continues to grow, tax-deferred.
Do you ever lose HSA money?
Myth #2: If I don't spend all my funds this year, I lose it. Reality: HSA funds never expire. When it comes to the HSA, there's no use-it-or-lose-it rule. Unlike Flexible Spending Account (FSA) funds, you keep your HSA dollars forever, even if you change employers, health plans, or retire.
What happens to the money in my HSA if I don't use it?
If you don't spend the money in your account, it will carryover year after year. Your HSA can be used now, next year or even when you're retired. Saving in your HSA can help you plan for health expenses you anticipate in the coming years, such as laser eye surgery, braces for your child, or paying Medicare premiums.
Can you keep HSA money forever?
Control: Employees have more control over their healthcare spending and can make contributions based on their individual situations. A forever account: The HSA belongs to the employee, stays with them forever, and they can contribute to the HSA even if they leave the current place of work or are not working at all.
No, you do not have to spend your health savings account money by the end of the year
Can you eventually cash out an HSA?
As a practical matter, you are allowed to withdraw funds from your HSA at any time for any reason. But if you aren't using the funds to cover a qualified medical expense, then you'll be stuck paying a penalty tax.
Is HSA better than 401k?
Comparing HSAs and 401(k)s
The triple-tax-free aspect of an HSA makes it better for tax management than a 401(k). However, since HSA withdrawals can only be used for healthcare costs, the 401(k) is a more flexible retirement savings tool. The fact that an HSA has no RMD gives it more flexibility than a 401(k).
Can I close my HSA and take the money?
But that does not mean you should close your HSA!
But if it's not an earth-shattering emergency, you're probably better off keeping your HSA. If you close your HSA and withdraw all the money, you're going to have to pay income tax on the withdrawal, plus a 20% additional tax if you're under age 65.
Is it better to use HSA or save it?
It is never ideal to go into debt to cover your deductible and other out-of-pocket costs. If you have medical bills right now that you can't cover from your checking account (or by tapping a portion of your emergency savings), it is wise to use your HSA today to pay your outstanding medical bills.
What happens if you don't withdraw excess HSA contributions?
The IRS imposes a 6% excise tax on any excess accumulation in your HSA. This tax is applied each year until the excess amount is withdrawn from the account. The excise tax is in addition to any income tax you may owe on the excess contribution.
What is the downside of an HSA?
Drawbacks of HSAs include tax penalties for nonmedical expenses before age 65, and contributions made to the HSA within six months of applying for Social Security benefits may be subject to penalties. HSAs have fewer limitations and more tax advantages than flexible spending accounts (FSAs).
Can I use my HSA for gym membership?
Generally, the IRS doesn't allow pretax dollars in HSAs or FSAs for gym memberships. This is because they see them as expenses for general well-being rather than medical necessity. However, with a Letter of Medical Necessity (LMN), your HSA or FSA could be used to fund those expenses.
Can I cash out my HSA if I leave my job?
An HSA is a portable account, meaning it goes where you go. If you leave a job, your HSA comes with you. You can keep withdrawing funds from the account, tax-free, to pay eligible expenses as long as there is money in there.
What is the 12 month rule for HSA?
It means you must remain eligible for the HSA until December 31 of the following year. The only exceptions are death or disability. If you violate the testing period requirement, your ineligible contributions become taxable income.
When should I stop putting money in my HSA?
If you don't use it for qualified medical expenses, it counts as income when you file your taxes. Six months before you retire or get Medicare benefits, you must stop contributing to your HSA. But, you can use money left in your HSA to help pay for qualified medical expenses that Medicare doesn't cover.
Can I use my HSA to pay for my girlfriend?
The only time you can use your HSA to pay for the healthcare costs of a friend is if you have named that person as a dependent on your most recent tax return (provided that they qualify under the non-relative qualifications — detailed below).
What happens if you never use HSA funds?
Unlike some other health plans where unused funds are forfeited at the end of the year, the money in your HSA is yours to keep. This feature provides flexibility and peace of mind, allowing you to save for future medical expenses or use the funds for other purposes when needed.
Can I use my HSA for massage?
Your HSA can pay for massage therapy, though you'll likely need a letter of medical necessity (LMN) from your doctor. An LMN states what condition the treatment is for, how many sessions you need, and any other relevant details. An HSA may also be used on alternative or holistic treatments, such as: Massage therapy.
What is the average HSA balance?
What Is the Average HSA Balance By Age? The average HSA balance for a family is about $7,500 and for individuals it is about $4,300. This average jumps up to $12,000 for families who invest in HSAs. Here's a breakdown of the average HSA balance by age.
Can I ever cash out my HSA?
Yes, you can withdraw funds from your HSA at any time. But please keep in mind that if you use your HSA funds for any reason other than to pay for a qualified medical expense, those funds will be taxed as ordinary income, and the IRS will impose a 20% penalty.
Can HSA be used for dental?
Yes, you can use a health savings account (HSA) or flexible spending account (FSA) for dental expenses.
How much should I have in my HSA at retirement?
The amount of money you should have in your HSA during retirement depends on your healthcare needs and circumstances. According to the Fidelity Retiree Health Care Cost Estimate, a single person who is age 65 in 2023 should aim to have about $157,000 saved (after tax) for healthcare expenses during retirement.
What is a potential downside of HSA?
The main downside of an HSA is that you must have a high-deductible health insurance plan to get one. A health insurance deductible is the amount of money you must pay out of pocket each year before your insurance plan benefits begin.
Is it smart to max out your HSA?
If you're able to make the maximum contribution each year, then it's suggested that you do so. Some years you may need to use more of your HSA contributions than other years. Just remember, there's no yearly minimum you have to spend from your HSA and your entire HSA automatically rolls over each year.
Are HSAs actually worth it?
HSAs have risen in popularity over the past few years because, in combination with high-deductible health plans (HDHPs), they can vastly reduce the monthly premium you and your employer pay. A higher deductible means lower premiums, and that could mean huge savings for you and your employer.