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Bank of America, N.A. makes available The HSA for Life® Health Savings Account as a custodian only. The HSA for Life is intended to qualify as a Health Savings Account (HSA) as set forth in Internal Revenue Code section 223. However, the account beneficiary establishing the HSA is solely responsible for ensuring satisfaction of eligibility requirements set forth in IRC sec 223. If an individual/employee establishes a HSA and s/he is not otherwise eligible, s/he will be subject to adverse tax consequences. In addition, an employer making contributions to the HSA of an ineligible individual may also be subject to tax consequences. We recommend that applicants and employers contact qualified tax or legal counsel before establishing a HSA.
Bank of America does not sponsor or maintain the Flexible Spending Accounts (FSA) / Health Reimbursement Accounts (HRA) that you establish. The programs are sponsored and maintained solely by the employer offering the plan, or by an individual establishing an independent plan. Bank of America acts solely as claims administrator performing administrative tasks pursuant to an agreement with, and at the direction of, the sponsoring employer or individual under an independent plan. The sponsoring employer or individual under an independent plan is solely responsible for ensuring such arrangements comply with all applicable laws.
The planning tools and information calculators are illustrative only, and accuracy is not guaranteed. They are intended to provide a comparative tool for various consumer health care options and potential costs and savings of those options. Bank of America and its affiliates are not tax or legal advisors. The calculators are not intended to offer any tax, legal or financial advice and do not assure the availability of or your eligibility for any specific product offered by Bank of America or its affiliates. Please consult with qualified professionals to discuss your situation. This site may contain links to third-party content, which may be articles, videos, or calculators, regarding health plans only as a convenience. Some articles, videos and calculators may have been written and produced by third parties not affiliated with Bank of America or any of its affiliates.
Neither Bank of America nor any of its affiliates or employees provide legal, tax or accounting advice. You should consult your legal and/or tax advisors before making any financial decisions. This material should be regarded as general information on health care considerations and is not intended to provide specific health care advice.
If you have questions regarding your particular health care situation, please contact your health care, legal or tax advisor.
Please consult with your own attorney or tax advisor to understand the tax and legal consequences of establishing and maintaining a HSA, FSA, Dependent Care FSA, and/or HRA plan.
All trademarks and service marks belong to Bank of America Corporation unless otherwise noted.
Bank of America, N.A., Member FDIC. Mutual Fund investment offerings for the Bank of America HSA are made available by Merrill Lynch, Pierce, Fenner & Smith Incorporated (“MLPF&S”), a registered broker-dealer, registered investment adviser, Member SIPC, and a wholly owned subsidiary of Bank of America Corporation (“BofA Corp.”). Investments in mutual funds are held in an omnibus account at MLPF&S in the name of Bank of America, N.A., for the benefit of all HSA account owners. Recommendations as to HSA investment menu options are provided to Bank of America, N.A. by the Chief Investment Office (“CIO”), Global Wealth & Investment Management (“GWIM”), a division of BofA Corp. The CIO, which provides investment strategies, due diligence, portfolio construction guidance and wealth management solutions for GWIM clients, is part of the Investment Solutions Group (ISG) of GWIM.
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Question: Does the penalty for using health savings account money for non-medical expenses disappear entirely at age 65? Does that mean I could withdraw the money after age 65 for a vacation and just pay taxes on the money, like I would with a 401(k)?
Answer: Yes to both questions. You’ll have to pay a 20% penalty plus income taxes if you withdraw money from an HSA for non-qualified expenses before age 65. But the penalty disappears at 65, and you’ll just have to pay taxes on the withdrawal if you use the money for anything other than eligible medical expenses at that point—similar to the tax deferral of a 401(k).
But you may be able to do even better. After age 65, you can use HSA money tax-free for several extra expenses, such as paying your monthly premiums for Medicare Part B and Part D and Medicare Advantage plans. If you have your Medicare premiums paid automatically from your Social Security benefits, you can withdraw the money tax-free from the HSA to reimburse yourself for those expenses. And you can continue to use HSA money tax-free to pay your out-of-pocket costs for medical care and prescription drugs, dental and vision care, a portion of long-term-care insurance premiums based on your age (up to $4,220 in 2019 for people ages 61 through 70, for example) and other eligible expenses. For more information about HSA-eligible expenses, see IRS Publication 969, Health Savings Accounts (opens in new tab).
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Plus, there’s an interesting nuance to the law that lets you withdraw money tax-free from an HSA to recoup payments for any eligible medical expenses incurred since you opened the HSA, even if the reimbursement is years in the future. That means if you paid cash for any eligible medical expenses after you established your HSA, rather than tapping the account, you can let the money grow tax-deferred in the HSA and then withdraw it tax-free at any time to recoup your costs. “It’s important for consumers to keep their receipts for their qualified HSA expenses,” says Steve Auerbach, CEO of Alegeus, which provides technology for HSAs.
Many health plans and HSA administrators provide web tools to help you track your bills for qualified medical expenses and note how you paid those bills.
As the "Ask Kim" columnist for Kiplinger's Personal Finance, Lankford receives hundreds of personal finance questions from readers every month. She is the author of Rescue Your Financial Life (McGraw-Hill, 2003), The Insurance Maze: How You Can Save Money on Insurance -- and Still Get the Coverage You Need (Kaplan, 2006), Kiplinger's Ask Kim for Money Smart Solutions (Kaplan, 2007) and The Kiplinger/BBB Personal Finance Guide for Military Families. She is frequently featured as a financial expert on television and radio, including NBC's Today Show, CNN, CNBC and National Public Radio.