How are the Funds
  in an HSA Used?

The funds in your HSA may be used to pay for any qualified medical expenses (see below) without penalty. Your HSA will give you a checkbook or debit card that can be used to pay for those expenses.

Additionally, you don’t need approval from your HSA administrator when you use the funds in your HSA and you don’t need to submit medical receipts (but you should save them as you would for any tax deductible items). The money in your HSA is yours to save and spend as you wish.

Any funds used for expenditures other than qualified medical expenses are subject to income taxes and a 10% penalty. Persons age 65 or older using their HSA funds for non-qualified expenses avoid the penalty fee, but must pay income taxes on that money as if it was retirement income.

It’s also important to remember that you must establish an HSA before you incur any medical expenses you wish to qualify.

Qualified Medical Expenses

Qualified Medical Expenses are the wide-range of medical costs that can be paid for with the tax-deductible savings in your HSA. These expenses include:

• Prescription and over-the-counter drugs
• Dental care
• Vision care, including laser eye surgery, glasses and contact lenses
• Long-term care
• Medically related transportation and lodging
• Insurance deductibles and co-payments

HSA’s cannot be used to pay health insurance premiums unless you are receiving federal or state unemployment benefits, or if you’re age 65 or older and the plan is neither Medicare nor a supplemental policy.

For a more complete listing of qualified medical expenses, see IRS Publication 502.