How to Use Funds From HSA Account After Leaving Plan

The Health Savings Account seems almost too good to be true. It gives employees tax-free money to cover health-related expenses that are not covered by their traditional health insurance. You put pretax money in an account in your name and use it for qualified expenses. The upside is that the money remains in the account even if you do not use it all by the end of the year--and even if you leave your employer. Over time, with regular contributions--and interest--the HSA can grow to a sizable amount.

Check to be sure the expenses you want to use the money for are qualified, as defined in IRS Publication 502. Typical examples include eyeglasses, contact lenses, dental procedures, chiropractic care, acupuncture, and prescriptions.

Withdraw money from your account. Since HSA money is yours alone, there are no special procedures for taking money out after you leave the plan. There are also no requirements to use the money by a certain age or date. If you find that you do not need to cover any qualified expenses, you are free to let your savings sit--growing tax deferred--for as long as you like. Once you leave the plan, however, you are not allowed to make any more contributions to your HSA.

Use the funds for qualified expenses. If you elect to spend HSA money on non-qualified expenses before you reach age 65, you will have to pay income tax as well as a penalty. After you turn 65, you will need to pay only income tax on withdrawals for non-qualified expenses. When in doubt, get in touch with a knowledgeable tax adviser or financial professional for advice.

Tips

  • When you leave your HSA plan, consider leaving the money in the account. As you age, your health care costs may rise. A health care nest egg, so to speak, may come in handy.

Warnings

  • IRS regulations undergo revision. Check current tax law--or consult a tax advisor--to stay abreast of changes regarding HSAs.

About the Author

D. Laverne O'Neal, an Ivy League graduate, published her first article in 1997. A former theater, dance and music critic for such publications as the "Oakland Tribune" and Gannett Newspapers, she started her Web-writing career during the dot-com heyday. O'Neal also translates and edits French and Spanish. Her strongest interests are the performing arts, design, food, health, personal finance and personal growth.