For a 63-year-old taxpayer, what is the penalty on early withdrawal from an HSA for non-medical expenses?

For a 63-year-old taxpayer, the penalty on early withdrawal from a Health Savings Account (HSA) for non-medical expenses is indeed correctly identified as no penalty. Taxpayers can withdraw funds from their HSA anytime for qualified medical expenses without incurring a penalty. However, if withdrawals are made for non-medical expenses before age 65, they typically incur a penalty of 20% in addition to regular income tax.

At age 65, individuals may take funds out of their HSA for non-medical reasons without incurring this penalty. Instead, to align with retirement account rules, they would pay ordinary income tax on the amount withdrawn. Therefore, since the taxpayer in this case is 63 years old, they would face the standard 20% penalty for early non-medical withdrawals, in addition to the income tax on the withdrawal.

Consequently, the correct understanding remains that there is a penalty of 20% for early withdrawal before age 65 on non-medical expenses.