Nonqualified distributions from a health savings account (HSA) have a tax penalty of?

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Prepare for the Aflac Insurance Exam. Study with flashcards and multiple choice questions, each featuring hints and explanations. Ace your exam!

Multiple Choice

Nonqualified distributions from a health savings account (HSA) have a tax penalty of?

Explanation:
Nonqualified distributions from an HSA carry a 20% penalty. This penalty is the extra tax charged when you take funds out for nonmedical purposes before you reach age 65, reinforcing that HSAs are meant to be used for medical expenses. If the distribution is used for qualified medical expenses, it’s tax-free. After age 65, the 20% penalty does not apply to nonmedical withdrawals—though those amounts may be subject to ordinary income tax if not used for medical expenses.

Nonqualified distributions from an HSA carry a 20% penalty. This penalty is the extra tax charged when you take funds out for nonmedical purposes before you reach age 65, reinforcing that HSAs are meant to be used for medical expenses. If the distribution is used for qualified medical expenses, it’s tax-free. After age 65, the 20% penalty does not apply to nonmedical withdrawals—though those amounts may be subject to ordinary income tax if not used for medical expenses.

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