1. Yes, you do not withdraw that money, but you do pay income tax on it as well as a 10% penalty, so whatever is left stays in your HSA.
2. Yes, if you withdraw dollars from the HSA after age 65 for non medical purposes, you pay only income tax on it, but no penalty. It becomes sort of like a funny IRA at that point. Of course, if you withdraw dollars for medical expenses, the withdrawal is still tax-free.
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