How are disbursements taxed if the account holder is no longer eligible for an HSA?
A. If the account holder is no longer eligible for an HSA (e.g., he/she is over age 65 and entitled to Medicare benefits, or no longer has a high deductible health plan), distributions used to pay for qualified medical expenses are still tax-free. If distributions are used to pay for items other than qualified medical expenses, then they are taxed as ordinary income (and subject to the 10% penalty).
