Can I Move My HSA to Another Bank?

Health Savings Accounts (HSAs) serve as a tax-advantaged savings and investment tool for healthcare expenses. Funds are owned by the individual, providing portability and control over accumulated savings. Account holders often move HSA funds between financial institutions for better investment choices, lower administrative fees, or to consolidate accounts. This flexibility allows individuals to manage healthcare finances strategically, ensuring savings align with long-term financial goals.

Understanding Your HSA Movement Options

Moving funds from one Health Savings Account to another involves two primary methods. A direct transfer, also known as a trustee-to-trustee transfer, moves funds directly between HSA custodians. The account holder does not take physical possession of the money during this process. This approach is often favored for its streamlined nature and reduced administrative burden.

The second method is an indirect rollover, which involves the account holder receiving a distribution from their existing HSA. This distribution typically comes as a check or electronic transfer. The account holder then has a specific timeframe to deposit these funds into a new or existing HSA. This method provides temporary control over the funds but requires careful attention to IRS regulations to maintain the tax-advantaged status of the savings.

Steps for a Direct Transfer

Initiating a direct transfer of HSA funds typically begins with contacting your new HSA custodian. The new custodian will provide the necessary forms, often labeled as a “Direct Transfer Request” or “Trustee-to-Trustee Transfer” form. Complete these forms accurately, providing details such as the existing HSA account number and the full name and address of the current HSA custodian.

Once the completed forms are submitted, the new custodian contacts the old custodian to arrange the transfer. The funds move directly between the financial institutions without passing through the account holder’s personal possession. This direct movement helps minimize potential complications and ensures the funds remain within the tax-advantaged HSA structure.

The processing time for a direct transfer can vary, generally ranging from two to five weeks, though some transfers may take up to eight weeks. While the receiving custodian typically does not charge a fee for incoming transfers, the relinquishing custodian may impose a transfer-out or account closure fee, which can range from approximately $25 to $50. Inquire about any such fees beforehand.

Direct transfers are not considered taxable events by the Internal Revenue Service (IRS). Account holders are not required to report these transfers as income or distributions on their tax returns, nor do they receive a Form 1099-R for the transfer itself. This simplifies tax filing and allows for unlimited direct transfers without impacting annual contribution limits.

Executing an Indirect Rollover

An indirect rollover of HSA funds begins when the account holder requests a distribution from their current HSA custodian. The custodian issues the funds directly to the account holder, usually by check or electronic transfer. This action shifts temporary custody of the funds to the individual, who then redeposits them into a new HSA.

The 60-day rule governs indirect rollovers. Funds received must be deposited into a new or existing HSA within 60 calendar days from the date of receipt to avoid tax consequences. The IRS generally allows only one indirect HSA rollover within any 12-month period, with this period starting from the date the funds are received.

For tax reporting purposes, the original HSA custodian issues a Form 1099-SA, which reports the distribution from the HSA. The account holder must report this rollover on IRS Form 8889, titled “Health Savings Accounts (HSAs),” when filing their federal income tax return. This form demonstrates to the IRS that the distribution was properly rolled over, ensuring it remains a non-taxable event.

Failure to comply with the 60-day rule means the entire distribution becomes taxable income. If the account holder is under age 65 and the distribution is not used for qualified medical expenses, a 20% penalty tax may be applied to the taxable portion. Some custodians may also charge a fee for processing such distributions.