Can I Use My Health Savings Account for Non-Medical Emergencies?

Posted in Health Savings Account

February 24th, 2009

Many people are intimidated by the costs involved in medical care. We all know the horror stories about high medical bills forcing people – even those with “good” insurance – into bankruptcy. People with high-deductible health plans (HDHPs) are especially worried, since those deductibles can really add up. So, they go out and get a health savings account, or HSAs, as they are commonly referred to. Health savings accounts are like 401(k)s and IRAs, in that they are accounts you pay money into which is then invested into the stock market. Like 401Ks and IRAs, health savings accounts can be accessed at any time – but there are significant strings attached if you do.

You can access your health savings account at any time, for any reason. If you access it for medical care that is covered by the HSA rules – meaning, medical expenses that the health savings account is permitted to pay for – you will not be penalized for it and will not have to pay any income tax on the health savings account. If, however, you take the money out of your HSA for non-medical reasons, you will have to pay income tax on it as well as a 10% penalty fee. Medical emergencies, such as disability, are not penalized and are not subject to the penalty fee. So, if you’ve lost your job in today’s difficult economy, and are on the verge of going broke and need to get the money out of your health savings account in order to get by, bear in mind that you will have to pay taxes and penalties on it. That can wipe out whatever profits the HSA has made, and just about all financial advisors will tell you not to spend the money in your HSA unless you absolutely have to.

Be sure to speak to a financial advisor before you open up a health savings account. Health savings accounts are perfect for some people and unnecessary for others.