SIE Exam Question 893: Answer and Explanation

Question: 893

Which of the following will result if a distribution is taken from a health savings account (HSA) by an individual under age 65, and the distribution is not used to pay for qualified medical expenses?

• A. The distribution is subject to ordinary income tax only.
• B. The distribution is subject to ordinary income tax and a 20% penalty.
• C. The distribution is subject to ordinary income tax and a 25% penalty.
• D. The distribution is not subject to tax.

Correct Answer: B

Explanation:

Distributions from a health savings account (HSA) that are not used to pay for qualified medical expenses are subject to ordinary income tax and a 20% penalty. The penalty is waived if the individual is age 65 or older.