I contributed $9,650 in after-tax dollars to my HSA (over 2 years). Am I allowed to withdraw that money at any time, since I already paid income taxes on it?

[dmertz · Accepted solution]

All money in an HSA is pre-tax, you have not paid any taxes on this money yet (unless you made the contribution yourself rather than through your employer and you failed to take a deduction for the contribution, but doing so only means that you overlooked the deduction, it does not create after-tax basis in your HSA).

All distributions from an HSA that are not used to pay for qualified medical expenses incurred after the HSA was established are subject to ordinary income tax and, if you are under age 65 at the time of the distribution, a 20% early-distribution penalty.

[Anonymous]

Thank you for your helpful response.

Since I was using TurboTax at the time, I'll say that TurboTax must have overlooked the deduction. That's disappointing.

[dmertz]

It's doubtful that TurboTax made a calculation error with regard to this.  This portion of TurboTax has been working properly for a number of years.  However, to reduce misunderstandings there *have* been a few changes to the wording on the HSA-related step-by-step entry screens for those married filing jointly.

If the contribution was made through your employer, your tax return will not show an HSA deduction because your employer will have already excluded the amount from boxes 1, 3 and 5 of your W-2, making the contribution pre-tax.