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A health savings account (HSA) is intended to be used to save for medical care but can also be used as a retirement savings account. You own your HSA funds, even if your employer opens the account for you, so you can take your money with you if you leave your job.
The process of moving your money from one HSA into another is called an HSA rollover. Here's how it works.
The money in any HSA is yours to keep, even if your employer provides the account and makes an HSA contribution on your behalf.
Unlike with an FSA, you don't have to spend the money in your HSA on healthcare in the year you make contributions. It remains available indefinitely until you decide to withdraw it. The money simply carries over from year to year and is yours to keep.
If you leave your job, you can take all your HSA money with you using a rollover. If you opened an HSA with a bank or brokerage and want to switch to a different one, a rollover also gives you the option to do so.
There are actually two processes to move your HSA funds into a new account:
HSA transfers and HSA rollovers accomplish the same thing, but you play a more active role in a rollover. You're limited to one rollover every 12 months, and you risk owing income taxes plus a 20% penalty for a nonqualified withdrawal if you don't redeposit your HSA funds within 60 days.
Trustee-to-trustee transfers eliminate these risks. There's no chance of incurring a penalty because your money is deposited directly into your new HSA for you. Since you don't have to worry about depositing the funds, you should always opt for a transfer if you can.
Rolling over an HSA can be confusing. Here are some answers to questions you may have about the process. These can help you make informed choices about what you do with the money in your HSA.
When you leave your job for any reason, you still get to keep all your HSA money. You can elect to leave the money invested with your current employer and make withdrawals whenever you wish, or you can transfer or roll over the HSA.
However, if you stop participating in the high-deductible health plan that made you eligible for the HSA, you will no longer be able to make new contributions to your HSA.
Unlike a flexible spending account (FSA), HSA money isn't "use it or lose it." Your money can stay in your account for as long as you'd like. You can withdraw it tax-free to use for medical expenses at any time.
If you don't spend all your HSA funds, the unused money simply carries over, or rolls over, from year to year. It stays in your account, and you don't have to do anything to make that happen unless you want to move the money into a different HSA.
Once you're 65, you can withdraw HSA funds for any reason without penalty. However, you'd still owe ordinary income tax if the funds aren't used for medical expenses. That's why it's often best to use money left in your HSA to pay for healthcare in retirement.
HSA funds carry over from year to year, but this is different from an HSA rollover. Any contributions you make and gains from investments can remain in your account for as long as you'd like. The money is simply carried over from year to year until you choose to withdraw it.
An HSA transfer occurs when your HSA trustee directly moves your money into your new HSA for you. With an HSA rollover, the trustee sends you the money, and you must deposit it into your new HSA within 60 days to avoid penalties.
If you are changing jobs, rolling over an HSA may make sense if:
The IRS establishes the HSA rules, so these regulations should apply to anyone doing a rollover. Here are some of the rules you should know about:
The process of rolling over an HSA is simple:
It is critical that you get your money deposited in time to avoid having your withdrawal counted as a distribution, which will trigger taxes and penalties.
Before you transfer old HSA funds into a new HSA, consider:
If you have a low HSA balance, expect to incur medical expenses soon, and there's a transfer fee, it may make sense to simply spend your balance on qualified medical expenses rather than move the funds to a new HSA. However, a rollover may make sense for you if you have a substantial amount of money in your HSA and can reduce your maintenance fees or gain access to better investment options.
When you leave a job, think carefully about whether it makes sense to keep your HSA with your current plan administrator or roll it over. If you determine you want to move your HSA funds to a new account, a trustee-to-trustee transfer will simplify the process.
However, both a transfer and a rollover provide the flexibility to move HSA funds to a new provider of your choosing. So, going through the paperwork may be well worth doing if you've found one you'd prefer.
