Can I Transfer My HSA to Another Company?

Health Savings Accounts (HSAs) offer a tax-advantaged way to save for medical expenses. These accounts work with a high-deductible health plan (HDHP), allowing individuals to contribute pre-tax dollars, grow funds tax-free, and make tax-free withdrawals for qualified medical expenses. Individuals often consider transferring their HSA to seek better investment opportunities, lower administrative fees, or to consolidate multiple accounts accumulated over time.

Understanding HSA Transfers

An HSA is an individually owned account, separate from employer-sponsored benefits. Funds belong to the account holder, making them portable even when changing jobs or health insurance providers. The ability to transfer an HSA provides flexibility and control over healthcare savings.

Individuals frequently explore HSA transfers for several reasons, including finding a new provider with more favorable administrative fees. Monthly maintenance fees for HSAs can range from $2.50 to $5.00, with some providers charging an average of $26 per year, though many offer no monthly fee or waive fees if a certain account balance, often between $1,000 and $5,000, is maintained. Another common motivation is the desire for enhanced investment choices, such as access to a broader selection of mutual funds, exchange-traded funds (ETFs), or brokerage options, which can potentially lead to greater long-term growth. Consolidating multiple HSAs, perhaps from different employers, into a single account can also simplify management and tracking of healthcare savings.

Methods for Transferring Your HSA

There are two primary methods for moving funds from one Health Savings Account to another: a trustee-to-trustee transfer, often called a direct transfer, and an indirect rollover. Each method has specific rules and implications for tax treatment and frequency.

The trustee-to-trustee transfer is generally considered the most straightforward and advisable method. In this process, funds are moved directly from your existing HSA custodian to your new HSA custodian without the money ever passing through your hands. This direct movement ensures the transfer is not considered a taxable event or a rollover for tax purposes, meaning it is not reported as a distribution to the IRS. Furthermore, there is no limit to the number of trustee-to-trustee transfers an individual can perform in a year. While this method avoids tax complexities, some old custodians may charge a transfer fee, typically ranging from $20 to $50, to move the assets out of the account.

Alternatively, an indirect rollover involves the account holder taking possession of the HSA funds. Your current HSA provider will issue a check or direct deposit of your account balance to you. Once you receive the funds, you are then responsible for depositing the full amount into a new HSA within 60 days to maintain its tax-advantaged status. Failing to deposit the funds within this strict 60-day timeframe can result in the entire amount being treated as a taxable withdrawal, subject to ordinary income tax and a 20% penalty. The IRS also limits indirect rollovers to once every 12 months across all your HSAs.

Initiating an HSA Transfer

The process for initiating an HSA transfer primarily involves your chosen new provider. The first step is selecting a new HSA provider that aligns with your financial goals and preferences, considering their fee structure, investment options, customer service, and online tools.

After identifying a suitable new custodian, open a new HSA account with them. The new HSA custodian typically initiates the transfer request and provides the necessary forms.

You will complete a transfer request form, authorizing the new custodian to contact your old provider and request the transfer of funds. This form requires specific information, such as your account numbers for both the old and new HSAs, along with contact details for both custodians. Once submitted, the new custodian handles the communication and coordination with your previous provider. Transfers can take two to eight weeks to complete, depending on the responsiveness of the transferring institution.

Key Considerations Before Transferring

Before initiating an HSA transfer, evaluate several factors to ensure it aligns with your long-term healthcare savings strategy.

Consider the various fees associated with HSA accounts. These include potential transfer fees charged by your old custodian, monthly maintenance fees from new providers, and platform fees. Investment-related fees, such as trading fees or underlying fund expense ratios, should also be compared. Some providers may waive certain fees based on your account balance.

Evaluate the investment options offered by the new provider. Assess whether they provide access to a diverse range of investment vehicles, such as mutual funds, exchange-traded funds, or a full brokerage platform, that align with your investment strategy. While transferring existing HSA funds does not require current eligibility, maintaining coverage under an HDHP is necessary to continue making new contributions to any HSA.

For tax reporting, direct trustee-to-trustee transfers are not taxable events and are not reported to the IRS. Indirect rollovers, however, do require reporting. Your old custodian will issue Form 1099-SA, detailing the distribution. Your new custodian will then issue Form 5498-SA, reporting the contribution. These forms are used to complete IRS Form 8889, which must be filed with your tax return to properly report all HSA activity and confirm the tax-free nature of the rollover.