What happens to an HSA at age 65?
Asked by: Caroline Turcotte | Last update: September 27, 2025Score: 4.9/5 (24 votes)
Are HSA withdrawals tax-free after 65?
At age 65, you can take penalty-free distributions from the HSA for any reason. However, in order to be both tax-free and penalty-free the distribution must be for a qualified medical expense. Withdrawals made for other purposes will be subject to ordinary income taxes.
How to preserve your HSA eligibility beyond age 65?
To maintain eligibility, individuals need to wait to sign up for Medicare and delay filing for Social Security benefits until they decide to either stop working or stop contributing to the HSA.
At what age can you no longer have an HSA?
When you turn 65 and begin Medicare coverage, you lose HSA eligibility on the first day of that month. For example, if your birthday is April 19, you are no longer eligible to contribute to an HSA as of April 1.
What happens to unused HSA funds at retirement?
After you turn 65 that 20% penalty no longer applies, allowing you to use your HSA funds however you want. You'll still pay income tax, which is similar to how a traditional IRA works when withdrawing money. Using your HSA funds for medical expenses after age 65 will still be eligible as tax-free.
Health Savings Account (HSA) Withdrawal After Age 65 in Retirement - Tax Free!
What happens to my HSA when I turn 65?
Once you turn 65, you can use the money in your HSA for anything you want. If you don't use it for qualified medical expenses, it counts as income when you file your taxes.
What happens to HSA money if you don't use it?
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 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 transfer money from my HSA to my bank account?
Online Transfers – On HSA Bank's member website, you can reimburse yourself for out-of-pocket expenses by making a one-time or reoccurring online transfer from your HSA to your personal checking or savings account.
At what age can funds be withdrawn from an HSA without tax penalty?
The HSA withdrawal rules change a bit when you turn 65. At that point, you can withdraw funds from your HSA without an extra penalty. That's true even if you use the funds for something other than a qualified medical expense.
Is HSA worth it for seniors?
Knowing that Medicare will only pay approximately 66%* of your health care costs in retirement, it may be a good idea to set aside money in your HSA for your retirement years.
What is the penalty for having an HSA while on Medicare?
There's no penalty for having an already established HSA when you're enrolled in Medicare, although you can no longer set up a new HSA. However, if you save to an HSA while you're enrolled in Medicare, you may be hit with IRS penalties on what are considered “excess contributions,” including a 6% excise tax charge.
What happens to HSA on death?
What happens to an HSA at death? Like an IRA account, when a person sets up an HSA, they name a beneficiary. If the beneficiary is a surviving spouse, the unused portion of the decedent's HSA passes directly to the spouse and becomes his or her HSA; there is no tax liability.
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.
What is the HSA account loophole?
The ultimate loophole available to almost everyone under the age of 65 in our tax code is the Health Savings Account (HSA). It is the only account you can contribute to and deduct the contribution and then withdraw the money tax free. Think about that, a tax deduction going in and no taxes going out.
Can I cash out my HSA when I leave my job?
Yes, you can cash out your HSA at any time. However, any funds withdrawn for costs other than qualified medical expenses will result in the IRS imposing a 20% tax penalty. If you leave your job, you don't have to cash out your HSA.
Can HSA be used for dental?
Yes, you can use a health savings account (HSA) or flexible spending account (FSA) for dental expenses.
Can I cash out my HSA account?
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 I use my HSA for someone not on my insurance?
Yes, as long as you use the funds to pay for qualified medical expenses, you can pay for any family member who is a tax dependent on your tax return. You may also use the funds for medical expenses incurred by your child who is claimed as a tax dependent by their other parent.
Do I ever lose my HSA money?
Because HSAs allow you to roll on with infinite rollover capabilities. If you have an HSA, and even if you leave your job, you'll never be faced with a “use it or lose it” scenario when it comes to your HSA contributions. The same can't be said for many other tax-advantaged accounts like FSAs.
What is the biggest advantage of an HSA?
- Federal tax advantages.
- Savings on qualified medical expenses.
- Many unreimbursed medical expenses qualify.
- Annual rollover.
- Others can contribute, including the participant's employer or family member.
- Convenience.
Can you go negative in an HSA?
The IRS states that having a negative HSA balance is prohibited by federal law. And while the IRS doesn't provide any specific guidance beyond that statement, you need to be sure that no expenses cause your HSA to fall into a negative balance. Long story short—don't overdraw your HSA.
What is the penalty for cashing out HSA?
IRS penalty and taxable income
Prior to age 65, if you use your money for non-qualified expenses, the IRS imposes a hefty HSA withdrawal penalty of 20 percent on the amount withdrawn. For example, if you spend $500 on non-qualified expenses, your penalty will be $100.
How do I transfer money from my HSA to my bank account?
* – To transfer funds directly from your HSA to your personal bank account, you will first need to add your bank account information to your profile. To do this, select “Profile” in the main navigation menu, then select “Banking/Cards” on the left-hand side and select the “Add Bank Account” link.
What can I do with leftover HSA money?
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.