Can I Transfer Funds From One HSA to Another?
Learn how to easily transfer funds between your Health Savings Accounts, understanding the methods and key considerations for seamless management.
Health Savings Accounts (HSAs) offer a tax-advantaged way to save for medical expenses. These accounts provide flexibility, and a common question concerns the ability to move funds between different HSA providers. It is indeed possible to transfer funds from one HSA to another, allowing account holders to consolidate accounts, seek better investment options, or adjust to changes in employment.
Understanding HSA Transfer Methods
Moving funds between Health Savings Accounts can be accomplished through two primary methods: a direct trustee-to-trustee transfer or a 60-day rollover. Each method has distinct characteristics regarding how the funds are handled and the involvement of the account holder.
A direct trustee-to-trustee transfer involves the movement of funds directly from your current HSA custodian to a new HSA custodian. With this method, the account holder never takes physical possession of the funds. This process is simpler and safer because the money flows directly between financial institutions.
A 60-day rollover transfer involves the account holder receiving a distribution from their existing HSA. A strict 60-day window then applies for depositing these funds into a new HSA. While this method offers flexibility, it places the responsibility on the individual to complete the transfer within the specified timeframe to avoid potential tax consequences.
Direct Trustee-to-Trustee Transfers
Initiating a direct trustee-to-trustee transfer begins by contacting the new HSA provider where you wish to move your funds. This institution provides the necessary forms or instructions to facilitate the transfer. Many new providers can request funds directly from your existing HSA custodian.
The new provider requires specific information to process the request, such as your existing HSA account number and the name and contact details of your current HSA provider. You may need to complete a transfer authorization form, granting permission to request funds. After submission, the new provider handles communication with your old HSA custodian.
Once the transfer is initiated, monitor the progress with both the old and new HSA providers. Confirming both institutions are processing the request can help prevent delays. The timeline for these transfers can vary, often taking two to eight weeks, depending on the transferring institution’s responsiveness and fund delivery method. If your HSA funds are invested, some custodians may require liquidation before transfer, while others might allow an “in-kind” transfer of securities.
60-Day Rollover Transfers
To begin a 60-day rollover, request a distribution from your existing HSA provider. Specify that the distribution is for an indirect rollover. Your current provider then issues a check payable to you for the rollover amount.
Upon receiving the funds, you have a strict 60-day deadline to deposit the entire amount into your new HSA. Failure to deposit funds within this timeframe results in the distributed amount being treated as a taxable withdrawal, subject to income tax and a potential 20% penalty if under age 65.
When depositing funds into your new HSA, clearly indicate to the new provider that this is a rollover contribution. This type of transfer requires specific tax reporting. You will receive Form 1099-SA from your old HSA provider, reporting the distribution, and your new provider will issue Form 5498-SA, indicating the rollover contribution. Proper reporting on IRS Form 8889 with your tax return confirms the rollover was a non-taxable event.
Key Considerations for Transfers
Properly executed HSA transfers, whether direct trustee-to-trustee or 60-day rollovers, are tax-free and penalty-free events. IRS rules allow individuals to move HSA funds without immediate tax liabilities, provided guidelines are followed. The amount transferred is not considered income and does not reduce your annual contribution limit for the year.
Frequency limitations differ between the two transfer methods. Direct trustee-to-trustee transfers have no annual limit. However, the 60-day rollover method is restricted to one rollover per person within a 12-month period, applying from the date you receive the distribution.
Transferring existing HSA funds does not require high-deductible health plan (HDHP) coverage, though HDHP coverage is necessary for new contributions. You can transfer existing funds even if no longer eligible to contribute. Some HSA providers may charge fees for transfers, account closures, or maintenance; inquire about potential costs with both current and prospective custodians. Consolidating multiple HSAs into one can simplify management and potentially reduce administrative fees.