Taking Tax-Free Distributions From Your HSA
Health Savings Accounts (HSAs) may be one of the biggest tax breaks currently available. If you have a qualifying high-deductible health plan, you may make a deductible contribution to an HSA. There are no income limits for eligibility to contribute. You can then take tax-free distributions from your HSA to pay for qualified medical expenses.
More Than Just Medical Bills
Qualified medical expenses mean more than just doctor bills. Qualified medical expenses include those that would generally qualify for the medical expense deduction under the Tax Code. This means you can take a tax-free distribution from your HSA to pay not only medical expenses like doctor and hospital bills, but also medical supplies, prescriptions co-payments, dental care, vision services, and chiropractic expenses. You can take tax-free distributions from your HSA to pay for your spouse’s or child’s medical expenses, even if they are not covered by your high-deductible health insurance plan.
Prior Year Expenses
You can take a tax and penalty-free distribution from your HSA in 2025 to pay for medical expenses in a previous year, as long as the expenses were incurred after you established your HSA. That means you do not have to make an HSA withdrawal every time you have a medical expense. You can pay that expense from your pocket, let your account grow, and decide to reimburse yourself in a later tax year. Even if you no longer have a high-deductible health plan and you are no longer contributing to your HSA, you can keep the HSA and continue to take tax-free distributions from your HSA to pay for your qualified medical expenses for you, your spouse, and your dependents.
At Age 65, and After Death
You cannot contribute to an HSA once you are enrolled in Medicare. However, you can keep your existing HSA, and you can still take tax-free distributions for qualified medical expenses. When you reach age 65, you also gain some new benefits with your HSA. Generally, insurance premiums are not considered qualified medical expenses. However, after age 65 and enrollment in Medicare, certain insurance premiums can be paid tax free with HSA distributions. You can take tax-free distributions from your HSA to pay for Medicare premiums, excluding Medigap.
If your HSA beneficiary is your spouse, after your death, he or she can maintain the HSA in his or her own name and can continue to access the funds. Distributions for qualified medical expenses will be tax free just as they would have been to you.
By Sarah Brenner, JD
Director of Retirement Education
Ed Slott and Company, LLC
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Christian Cordoba, founder of California Retirement Advisors, has been a member of Ed Slott's Master Elite IRA Advisor Group since 2007.