The 20% penalty, the 6% excise trap, the Medicare surprise, and the receipts people lose — the most expensive HSA mistakes and how to avoid each one.
Before age 65, a non-qualified HSA withdrawal is taxed as income PLUS a 20% penalty. Buying general-wellness products on an assumption of eligibility is the common version — check the item against a cited eligibility database first.
Regular health insurance premiums are NOT qualified expenses. The exceptions: COBRA, premiums while on unemployment, qualified long-term-care insurance (within age-based limits), and Medicare premiums once you're 65+ (but never Medigap).
Excess contributions carry a 6% excise tax EVERY YEAR until removed. It happens most often with job changes (two employers contributing) or family/self coverage switches mid-year. Withdraw the excess plus earnings before the tax deadline to cure it.
Tax-free reimbursement lives or dies on substantiation. No receipt, no defense — and the expense effectively becomes non-qualified if challenged. Capture receipts at purchase time, not at tax time.
Medicare enrollment ends HSA contribution eligibility — and Part A coverage is retroactive up to 6 months when you enroll after 65. Stop contributing 6 months before enrolling to avoid backdated excess contributions.
Expenses from before your HSA existed are never reimbursable. Know your establishment date; don't backfill past it.
The triple tax advantage compounds only if the money grows. Most custodians let you invest above a small cash threshold — an HSA left 100% in cash for decades forfeits most of its value as a retirement vehicle. (Not investment advice; your allocation is your call.)
Candor vaults your receipts, tracks your Claimable Balance, and answers eligibility questions with IRS citations — free.
Start your shoebox — freeInformational only — not tax, legal, or medical advice. Consult a qualified tax professional about your situation. Rules version 2026-07-16, last verified July 2026.