WITHDRAWALS

HSA participants do not have to obtain advance approval from their HSA trustee or their medical insurer to withdraw funds, and the funds are not subject to income taxation if made for qualified medical expenses. These include deductibles and coinsurance as well as many other expenses not covered under medical plans, such as dental, vision and chiropractic care; durable medical equipment such as eyeglasses and hearing aids; purchase and use of qualifying over-the-counter medications; and transportation expenses related to medical care.
There are several ways that funds in an HSA can be withdrawn. Some HSAs include a debit card, some supply checks for account holder use, and some allow for a reimbursement process similar to other types of insurance. Most HSAs have more than one possible method for withdrawal. The exact method of withdrawal varies from HSA to HSA and can be considered a marketing design issue. Checks and debits do not have to be made payable directly to the provider. However, in the case of an audit, account holders will be expected to provide documentary evidence that the transaction was for a qualified expense in order to avoid making the amount in question subject to income tax plus a 10% tax penalty for early withdrawal.
The 10% tax penalty is waived for persons who have reached the age of 65 or have become disabled by the time of the withdrawal. Then, only income tax is paid on the withdrawal, and in effect the account has grown tax free (similar to an IRA). Medical expenses continue to be tax free.