Can an HSA Be Transferred to Another Provider?

A Health Savings Account (HSA) offers tax advantages for eligible medical expenses. These accounts are portable, allowing funds to be moved between different providers. Individuals often transfer their HSA to seek lower administrative fees, access better investment opportunities, or consolidate multiple accounts for simplified management. This flexibility helps account holders optimize their savings and investments.

Understanding HSA Transferability

HSA funds are portable, allowing account holders to move balances between qualified custodians. This ensures funds remain accessible for eligible medical expenses, regardless of changes in employment or healthcare plans. There are two primary methods for moving HSA funds: a direct transfer, also known as a trustee-to-trustee transfer, and an indirect rollover.

A direct transfer moves funds directly from the old HSA provider to the new one, without the account holder physically handling the money. This method is generally preferred due to its simplicity and absence of tax implications. An indirect rollover involves funds being distributed to the account holder, who then redeposits them into a new HSA within a specific timeframe. Reasons for initiating a transfer typically include dissatisfaction with current fees, limited investment choices, poor customer service, or consolidating accounts for easier financial oversight.

Direct Transfer Process

A direct transfer is the most straightforward and recommended way to move HSA funds, as it avoids potential tax complications. This process involves the new HSA provider directly requesting funds from your current provider. The funds move electronically or via check between financial institutions, and the account holder never takes physical possession of the money.

To begin, research and select a new HSA provider that aligns with your financial goals, considering administrative fees, investment options, and customer service quality. After choosing a new provider, open a new HSA account with them.

Once your new account is established, initiate the transfer request through the new provider. They will provide a “transfer initiation form” requiring detailed information about your existing HSA, including the account number and current provider’s name. Submit the form to your new HSA provider, who will handle communication and coordination with your old provider. The old provider processes the request and releases the funds, which are then deposited into your new account. This process usually takes several weeks, typically ranging from three to eight weeks, depending on the institutions involved. Since the funds are never in your direct possession, this method generally avoids any taxable events or reporting on your tax return.

Indirect Rollover Process

An indirect rollover provides another method for moving HSA funds, involving the account holder directly receiving the funds before depositing them into a new HSA. This process requires careful adherence to IRS rules to avoid taxable distributions and penalties. You first request a distribution from your current HSA provider, who will issue a check or electronic transfer directly to you.

Upon receiving the funds, a 60-day rule applies: you must deposit the entire amount into a new HSA account within 60 calendar days from the distribution date. Failing to meet this deadline results in the funds being considered a taxable withdrawal, subject to ordinary income tax and a 20% penalty if you are under age 65. This 60-day period begins the day you receive the funds.

Additionally, the IRS imposes a “once-per-year” rule for indirect rollovers, meaning you can only complete one such rollover within any 12-month period across all your HSAs. This 12-month period starts on the date you receive the distribution. If you have investments within your HSA, you may need to liquidate them to cash before the distribution, as not all providers support in-kind transfers during an indirect rollover. While an indirect rollover allows you to temporarily hold the funds, its strict deadlines and frequency limitations make it a less flexible option compared to a direct transfer.

Post-Transfer Steps

After initiating a transfer, verify its completion by checking statements from both your old and new HSA providers. Confirm that the funds have been successfully debited from the old account and credited to the new one.

Consider closing your old HSA account if it no longer serves a purpose. Some providers may charge account closure fees, which can range from $25 to $50. If you choose to keep the old account open with a zero or minimal balance, be aware that some providers may still levy monthly or administrative fees. For HSAs that offer investment options, re-establish your investment allocations in the new account once the funds have arrived. Many providers allow you to invest a portion of your cash balance into various securities like mutual funds, which can help grow your savings tax-free.

You will receive tax forms related to the transfer, even if it was non-taxable. Your old provider typically issues Form 1099-SA, reporting any distributions. Your new provider issues Form 5498-SA, reporting contributions and the fair market value of your account. While direct transfers are generally not reported as distributions on Form 1099-SA, indirect rollovers will be, requiring careful attention for proper tax reporting on IRS Form 8889. Continue to monitor your new HSA for fees and investment performance.