If you take a distribution from your Medical Savings Account (MSA) for something other than qualified medical expenses, the amount is generally subject to income tax plus an additional 20% tax.
However, the 20% additional tax does not apply to distributions made on or after the date you:
- Die
- Become disabled
- Reach age 65
In these situations, any nonqualified distribution may still be taxable as income, but you won't owe the extra 20% penalty.
It's important to note that distributions used to pay qualified medical expenses are generally tax-free regardless of your age and are not subject to the additional tax. Keeping records of your medical expenses can help support the tax-free treatment of these withdrawals if the IRS ever asks for documentation.