HSA Eligibility & Distributions
What an HSA is
“A health savings account (HSA) is a tax-sheltered account that allows tax-deductible contributions and tax-free distributions (when used correctly).”
- 🔑 To receive these tax benefits, you must meet specific eligibility rules.
Eligibility requirements (qualifying health plan)
🔑 To qualify to make contributions to an HSA:
| Requirement | Detail (as stated on the page) |
|---|---|
| Health plan | Must be covered by a high deductible health insurance plan |
| Nature of those plans | “These plans typically have lower premiums but higher deductibles.” |
| Medicare | You “can’t be covered by Medicare” |
| Dependent status | You “can’t be claimed as a dependent on another person’s tax return” |
| Result if met | “If you meet these requirements, you may contribute to an HSA.” |
Contributions
- Contributions are deductible (often described as pre-tax).
- 🔑 “the amount you contribute reduces your earned income for tax purposes, which can lower your income taxes.”
The page does not state a specific dollar contribution limit — no annual contribution limit figure appears in this chapter’s text.
Investing the assets
After money is contributed, it can be invested in a wide variety of securities, including:
-
Common stock
-
Preferred stock
-
Bonds
-
Mutual funds
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Exchange traded funds (ETFs)
-
🔑 “The assets grow on a tax-deferred basis, meaning investment gains generally aren’t taxed until money is distributed from the account.”
Distributions
| Situation | Tax treatment |
|---|---|
| Distribution used for qualified medical expenses | “If the distribution is used for qualified medical expenses, it isn’t subject to taxes.” (tax-free) |
| Distribution used for non-qualified expenses | “the distribution is subject to ordinary income taxes plus a 20% penalty” |
- The primary purpose of an HSA is to pay for medical expenses. When you have a qualified medical expense, you may withdraw money from your HSA to pay for it.
Exceptions to the 20% penalty
The page flags these as “lightly tested.”
| Exception | Effect on 20% penalty | Effect on income tax |
|---|---|---|
| Account owner turns age 65 | Penalty does not apply | “the IRS still considers the distribution to be taxable ordinary income” |
| Account owner qualifies as disabled (as per IRS requirements) | Penalty does not apply | “the IRS still considers the distribution to be taxable ordinary income” |
🔑 Numbers & limits
| Item | Figure stated on page |
|---|---|
| Penalty on non-qualified distributions | 20% (plus ordinary income tax) |
| Age threshold that waives the 20% penalty | Age 65 |
| Other waiver of the 20% penalty | Qualifying as disabled (per IRS requirements) |
| Required insurance plan type | High deductible health insurance plan |
| Disqualifying coverage | Medicare coverage |
| Disqualifying status | Being claimed as a dependent on another person’s tax return |
| Annual contribution dollar limit | Not stated in this chapter |
Key points
Health savings accounts (HSAs)
- Tax-sheltered health savings plan
- Must have a high-deductible insurance plan
- Contributions are tax-deductible
- Distributions are tax-free if used for qualified expenses
- Consequences of not using for qualified expenses:
- Ordinary income tax
- Plus a 20% penalty
Sources
Primary/official references for the material in this chapter. Every link was fetched and returned HTTP 200 on 2026-08-15.
| # | Source | Publisher |
|---|---|---|
| 1 | Pub 969 — HSAs, HDHP definition, qualified expenses | IRS |
| 2 | Pub 970 — 529s, Coverdell ESAs, education credits | IRS |
| 3 | Achievable Series 65 — chapter 2.8.2 | Achievable (course text) |