What happens if I use my HSA funds for ineligible expenses?
An HSA allows you to withdraw funds for any reason. However, you would need to pay ordinary tax and an additional penalty of 20% on any funds that are withdrawn for an ineligible expense.
You are responsible for determining if an expense is an eligible medical expense and maintaining receipts for tax reporting and potential IRS audit purposes. At age 65, funds can be withdrawn for any reason and only ordinary tax applies.