HSA Withdrawals

If you are looking for a way to have an income by saving over the years, especially if you are saving with the intention to use that part of your income for health purposes, then opening a health savings account (HSA) is the best way to go about it. These types of accounts end up being a combination of all the best features that traditional and Roth IRAs offer, yet in one easy-to-access package.

To start with, when you make contributions towards an HSA account, you will be able to get a tax deduction for that amount, so growing this account over your employment years is not going to be a financial burden. Not to mention, HSA accounts grow tax-free, no matter how many earnings there are.

When it comes to using the money from these accounts, any withdrawal you make that goes towards a qualified health expense (which, let’s be honest, is a very broad term) is not going to be taxed. The drawback for these types of accounts is the fact that if you are not going to use the money for health reasons until you reach the age of 65, the penalty fee is steep: up to 20%! However, once you turn 65, any withdrawal is not going to face penalties.

When it comes to how that money is taxed in terms of after you are a retiree, if you are using it for non-health-related reasons, you are going to have to pay income tax on that amount. Yet, if they go towards any healthcare expense, which is the best way to use such accounts, they are going to be tax-free funds!

If you want to know more about the American healthcare system and how it works, we recommend you read this book on the subject!