What percentage is imposed as a penalty for distributions made from a Health Savings Account (HSA) for non-qualified medical expenses?

Distributions from a Health Savings Account (HSA) that are not used for qualified medical expenses are subject to a penalty. The correct penalty percentage for these non-qualified withdrawals is indeed 20%. This penalty is applied in addition to any income tax due on the amount of the distribution that was not used for eligible health expenses.

Understanding the rationale behind this penalty is important. The purpose of an HSA is to help individuals save for medical expenses, and by imposing a penalty on non-qualified distributions, the IRS encourages account holders to use these funds specifically for their intended purpose. This helps maintain the integrity of the HSA as a tax-advantaged savings option for medical costs.

The other options do not reflect the current IRS regulations regarding HSA penalties. For example, the 10% figure is associated with penalties for early withdrawals from retirement accounts like IRAs, rather than HSAs. Therefore, knowing the correct percentage ensures that individuals can make informed decisions about their HSA distributions.