When we put together HSA vs FSA we left a gap: taking money out of an HSA for something other than medical care is known to carry a penalty, but we could not confirm the rate or the age condition from the source, so we left both out. IRS Publication 969 has them.
1. You pay income tax on it. The source says “you must pay tax on the distribution” — it lands on that year’s income.
2. And 20% is added on top. “An additional 20% tax.” It is separate from the income tax.
3. From 65 the 20% disappears. Disability and death do the same. The income tax stays.
One birthday changes it
Say you take $1,000 out for something other than medical care. With a 22% bracket as an example, it looks like this.
Before 65 the income tax of $220 carries the $200 additional tax on top, for $420 — 42% of what you withdrew. Past 65 only the additional tax goes, leaving $220, or 22% (our calculation).
This is where people slip. Turning 65 does not mean “spend it on anything, tax free”. What the source removes is the additional tax alone; “you must pay tax on the distribution” still stands. The income tax applies at any age.
So an HSA has two faces
Spent on medical care it is untaxed going in and coming out. Spent on anything else, from 65 it behaves like a traditional IRA — an account you pay income tax on when you draw from it.
Put another way, after 65 an HSA is “tax-free for medical care, taxed otherwise”. Either use is open to you, so nothing is lost — but “free from 65” it is not.
Both numbers differ from a retirement account
“An additional tax for taking it early” also exists on a 401(k) or IRA. But both figures are different.
| Account | Additional tax | Age it stops |
|---|---|---|
| HSA — non-medical withdrawal | 20% | 65 |
| IRA / 401(k) — early distribution | 10% | 59½ |
The HSA rate is exactly twice as high (our calculation), and its age threshold arrives 5 years 6 months later. Assume “it is a retirement account, so 59½ will do” and you pay 20% for those 5 years 6 months.
All you need to carry is that the two are out of step — the HSA rate is higher and its age is later.
Questions this leaves
Can I claim old receipts later?
We could not confirm this. Saving up old medical receipts to reimburse yourself years later is widely discussed, but we could not find the deadline or the conditions in the source, so it is left out rather than guessed at.
How much is it if a whole family limit is misspent?
Spend the whole 2026 family limit of $8,750 on something other than medical care and the additional tax alone is $1,750 (our calculation — 20% of $8,750). Income tax comes on top of that. The bigger the limit, the more a mistake costs.
How are disability and death determined?
The source says only “after the date you are disabled, reach age 65, or die”. How disability is determined is not covered here — there is a separate definition and we could not verify it.
So should I treat an HSA as a retirement account?
This piece does not make that judgement. It sets out the rule: from 65 the additional tax goes and the income tax remains. Whether that suits you depends on your rate now against your rate later, and on what medical costs you expect. Limits and eligibility are in HSA vs FSA.
Sources and where to check
IRS Publication 969 — Health Savings Accounts and Other Tax-Favored Health Plans. “If you don’t use a distribution from your HSA for qualified medical expenses, you must pay tax on the distribution.” · “There is an additional 20% tax on the part of your distributions not used for qualified medical expenses.” · “There is no additional tax on distributions made after the date you are disabled, reach age 65, or die.” (irs.gov)
IRS Topic no. 557 — “you’ll be assessed a 10% additional tax on early distributions from traditional and Roth IRAs, unless an exception applies. Generally, early distributions are those you receive from an IRA before reaching age 59½.” Source for the 10% and 59½ used in the comparison. (irs.gov)
Our own calculation — $420, $220, 42%, 22% and $1,750, along with “exactly twice the rate” and “5 years 6 months later”, are worked out from the figures above. The 22% bracket is an example.
What we could not verify — the deadline and conditions for reimbursing an old receipt, and how disability is determined. Neither has been filled in by guesswork. State tax is separate from the federal rules here.
As of August 2026, federal only. Not tax advice. Limits and HDHP eligibility are in HSA vs FSA; withdrawal rules for the other accounts are in the 401(k) guide and the IRA guide.
