What happens if I withdraw money for a non-eligible expense?

You do not need to have your expenses approved in advance. Eligible expenses include anything that improves or maintains the health, independence, or quality of life of the person with a disability. The federal government acknowledges that each of us has different needs and an idea of what a good quality of life is. They intentionally left the definition of eligible expense broad because it will vary person to person, and situation to situation.

If you or the IRS decides that you’ve had a non-eligible expense, you will have to pay taxes on the withdrawal’s earnings and a 10% penalty on the earnings. A withdrawal used for a non-eligible expense, or for housing expenses even if they are qualified disability expenses, could affect your eligibility for Supplemental Security Income (SSI) benefits, Medicaid, etc.