What is the penalty for non-qualified withdrawals from a health savings account?

The penalty for non-qualified withdrawals from a health savings account (HSA) is typically 20%. This means that if an individual uses funds from their HSA for expenses that do not meet the IRS guidelines for qualified medical expenses, they will incur a 20% penalty on the amount withdrawn.

This penalty is designed to encourage individuals to utilize their HSA funds for medical expenses as intended, promoting savings for healthcare costs. Additionally, non-qualified withdrawals may also be subject to ordinary income tax on the amount withdrawn, further emphasizing the importance of using these funds appropriately.

It's essential to understand the regulations surrounding HSAs, including the penalties for mismanagement or misuse of these accounts, to avoid unnecessary financial consequences.