Can You Withdraw Money From HSA at ATM?

A Health Savings Account (HSA) is a tax-advantaged savings account designed for healthcare expenses. It is established with a qualified trustee, such as a bank or insurance company, to help individuals manage medical costs. The primary purpose of an HSA is to provide a tool for those with eligible high-deductible health plans to save and pay for current or future healthcare needs.

Accessing HSA Funds

Accessing money from a Health Savings Account is straightforward, and it is possible to withdraw funds from an HSA at an ATM. This is facilitated through a dedicated HSA debit card, which functions much like a standard bank debit card. Account holders can use this debit card for direct payments at the point of sale for medical services or products, such as at a doctor’s office or pharmacy. Many HSA providers also offer other convenient methods for accessing funds, including online transfers to a linked personal bank account, bill pay features to directly pay healthcare providers, or checks issued from the HSA. While these mechanisms make funds readily available, their use is subject to Internal Revenue Service (IRS) regulations concerning eligible expenses.

Using Funds for Qualified Medical Expenses

The IRS defines “qualified medical expenses” as amounts paid for the diagnosis, cure, mitigation, treatment, or prevention of disease, and for treatments affecting any part or function of the body. When HSA funds are used for these expenses, the withdrawals are entirely tax-free. Common examples include doctor visits, prescription medications, dental care, vision care, over-the-counter medications, menstrual care products, co-payments, and deductibles. Account holders must maintain detailed records, such as receipts, for all HSA expenditures. This documentation is necessary for tax purposes, as the individual is responsible for demonstrating the legitimacy of all withdrawals if audited by the IRS.

Non-Qualified Withdrawals

Withdrawing HSA funds for purposes that do not meet the definition of qualified medical expenses carries financial consequences. Such withdrawals become taxable as ordinary income for the account holder. In addition to income tax, a 20% penalty applies to these non-qualified withdrawals if made by individuals under age 65. For example, a $500 non-qualified withdrawal would incur a $100 penalty, alongside regular income tax.

The 20% penalty is waived in specific circumstances, though withdrawals may still be subject to income tax. This penalty does not apply to distributions made after the account holder reaches age 65. Funds withdrawn after age 65 for non-medical reasons are treated similarly to distributions from a traditional Individual Retirement Account (IRA), becoming taxable income but without the additional penalty. The penalty also does not apply if withdrawals are made due to the account holder’s disability or upon their death. If an HSA beneficiary is not the surviving spouse, the account ceases to be an HSA, and the funds become taxable income for that beneficiary.