Can I Move My HSA? How Transfers and Rollovers Work

Health Savings Accounts (HSAs) offer a tax-advantaged way to save for medical expenses. As circumstances change, individuals may want to manage their HSA funds differently, including moving them to a new provider. Understanding the available methods for transferring these funds is important for account holders seeking to consolidate accounts or change custodians.

Methods for Moving an HSA

There are two primary methods for moving funds from one Health Savings Account to another: a direct trustee-to-trustee transfer and an indirect rollover. Each method involves distinct procedures. The choice often depends on the account holder’s preference for direct handling of funds and the timeline involved.

A direct trustee-to-trustee transfer involves the current HSA custodian directly transferring funds to a new HSA custodian. In this method, the funds never pass through the hands of the account holder. This process is simpler, carries less risk of rule violations, and is often preferred for its straightforward nature.

Conversely, an indirect rollover involves the HSA funds being distributed to the account holder from the current custodian. The account holder then takes possession of these funds and is responsible for depositing them into a new HSA within a specified timeframe. This method requires careful attention to deadlines and rules to avoid potential tax consequences.

Executing a Direct Trustee-to-Trustee Transfer

Initiating a direct trustee-to-trustee transfer begins with the new Health Savings Account custodian. Before starting, gather all necessary information, including your current HSA account number and the name of your existing HSA provider. You will also need the new HSA account number and the name of your new HSA custodian.

Most new HSA custodians provide transfer forms. These forms authorize the new custodian to request funds from your current HSA provider. You will need to accurately complete these forms, providing details from both your existing and new accounts. Ensure all requested information, such as account numbers and custodian names, is entered.

Once the transfer form is completed, submit it directly to your new HSA custodian. Their team will then communicate with your old HSA custodian to facilitate the transfer of funds. This inter-custodian communication streamlines the process, as you are not directly involved in moving the money.

The timeline for a direct trustee-to-trustee transfer can vary, but it takes between one to four weeks to complete. Some transfers may be quicker, while others might require additional time depending on the responsiveness of both custodians. While the transfer is pending, monitor both accounts to confirm the funds have successfully moved from the old HSA to the new one.

Executing an Indirect HSA Rollover

An indirect Health Savings Account rollover requires adherence to Internal Revenue Service (IRS) rules to maintain its tax-advantaged status. The 60-day limit mandates that funds distributed from an HSA must be re-deposited into another HSA within 60 calendar days of receipt. Failure to meet this deadline can result in the distributed amount being treated as taxable income and subject to a 20% penalty if you are under age 65.

Another rule for indirect rollovers is the once-per-12-month period limitation. You are permitted only one indirect HSA rollover within any 12-month period, regardless of the number of HSAs you own. Exceeding this limit can lead to the distribution being taxed and penalized.

The process for an indirect rollover involves your current HSA custodian issuing a check or initiating an electronic transfer of your funds directly to you. Upon receiving these funds, you must deposit the entire amount into your new HSA within the 60-day window. Deposit the exact amount received to avoid any discrepancies that could trigger tax implications.

When depositing the funds into your new HSA, clearly indicate to the new custodian that this deposit constitutes an HSA rollover. This ensures the transaction is correctly categorized for tax reporting purposes and is not treated as a new contribution.

Post-Transfer Reporting and Ongoing Rules

After completing an HSA transfer, whether direct or indirect, there are tax reporting requirements. Your former HSA custodian will issue Form 1099-SA, “Distributions From an HSA, Archer MSA, or Medicare Advantage MSA,” reporting the distribution of funds. For a direct trustee-to-trustee transfer, this form will show a distribution amount with a code indicating it was a non-taxable rollover.

In the case of an indirect rollover, Form 1099-SA will also be issued. Report this on your tax return, on Form 8889, “Health Savings Accounts (HSAs).” Indicate that the funds were rolled over within the 60-day period, ensuring the amount is not considered taxable income. Your new HSA custodian will issue Form 5498-SA, “HSA, Archer MSA, or Medicare Advantage MSA Contributions,” which reports the contributions, including any rollovers, made to your new account.

While HSA funds remain HSA funds regardless of your current health plan, ongoing eligibility for a High Deductible Health Plan (HDHP) is necessary for making new contributions to an HSA. You can continue to use existing HSA funds even if you are no longer covered by an HDHP, but you cannot add new money to the account unless you regain eligibility. Transfers between HSAs do not affect your HDHP eligibility.

Many individuals choose to transfer their HSA funds to consolidate multiple accounts into a single HSA. This can simplify management, reduce administrative fees, and provide a clearer overview of total healthcare savings. The transfer process facilitates this consolidation, allowing account holders to streamline their financial planning.