Can You Move HSA Funds to Another HSA?

Health Savings Accounts (HSAs) offer a tax-advantaged way to save for healthcare expenses, providing a unique combination of tax deductions for contributions, tax-free growth, and tax-free withdrawals for qualified medical costs. Many individuals find themselves with multiple HSAs over time, perhaps from changing employers or opening new accounts for different purposes. Fortunately, it is indeed possible to move funds between these accounts, which can be beneficial for consolidating assets, seeking lower administrative fees, or accessing a wider range of investment opportunities. This flexibility allows account holders to manage their healthcare savings more efficiently and strategically.

Understanding HSA Fund Movement Options

Moving funds between Health Savings Accounts typically involves one of two distinct methods: a direct trustee-to-trustee transfer or a 60-day rollover. Each method has specific requirements and implications. Understanding these differences is important for choosing the most suitable approach.

A direct trustee-to-trustee transfer involves the movement of funds directly from one HSA custodian to another without the money ever passing through the account holder’s hands. This method is generally considered the simplest and safest way to consolidate or move HSA funds. There is no limit to the frequency of these transfers, and they are not considered rollovers by the IRS.

Conversely, a 60-day rollover involves the distribution of funds from your existing HSA directly to you, the account holder. Once received, you then have a strict 60-day window to deposit these funds into a new or existing HSA. This method offers the account holder temporary control over the funds, but it comes with a significant limitation: you are permitted only one such rollover from any of your IRAs or HSAs within a 12-month period. Failing to redeposit the funds within the 60-day timeframe can result in the distribution being treated as a taxable withdrawal, subject to income tax and a potential 20% penalty if you are under age 65.

Initiating an HSA Fund Transfer

The process for moving funds between HSAs varies depending on whether you choose a direct trustee-to-trustee transfer or a 60-day rollover. Both methods require careful attention to ensure a smooth transition and avoid tax complications.

For a direct trustee-to-trustee transfer, the initial step is to contact the new Health Savings Account provider where you wish to move your funds. Most new providers will have specific transfer forms that need to be completed, requiring details such as your existing HSA account number and the current custodian’s information. The new provider will then typically handle the communication and coordination with your old HSA custodian to facilitate the electronic or check transfer of assets. This method minimizes your direct involvement, as the funds are moved securely between institutions without your physical handling of the money.

When opting for a 60-day rollover, you must first request a distribution from your current HSA provider. This request will typically involve completing a withdrawal form and specifying that the distribution is intended for a rollover. The funds will then be sent directly to you, often in the form of a check. Upon receiving the funds, you are responsible for depositing the entire amount into your new or existing HSA within 60 calendar days from the date of the distribution.

Adhering strictly to the 60-day deadline for rollovers is crucial to avoid adverse tax consequences, including potential penalties if funds are not redeposited. Keeping meticulous records of the distribution and deposit dates is important for tax filings.

Key Considerations Before Moving Funds

Before proceeding with an HSA fund movement, evaluating several factors can help ensure you make an informed decision that aligns with your financial goals.

A primary consideration involves the fees associated with both your current and prospective HSA providers. These can include monthly maintenance fees, investment fees such as expense ratios on mutual funds or trading commissions, and potential transfer fees charged by the outgoing custodian for moving your assets. Comparing these costs can reveal significant savings, as some providers may offer no monthly fees or waive them if a minimum account balance is maintained.

Another important aspect to review is the range and quality of investment options available through different HSA providers. Some HSAs may offer a limited selection of cash-equivalent accounts, while others provide access to a broad array of mutual funds, exchange-traded funds (ETFs), or even self-directed brokerage accounts. Evaluating the investment choices can help you determine if a new provider better suits your long-term growth objectives for your healthcare savings.

Considering the customer service and online tools offered by a prospective HSA provider is also beneficial. A user-friendly online platform, mobile app, and responsive customer support can greatly simplify managing your account and accessing your funds when needed. Ease of access to account information and transaction history can contribute significantly to a positive user experience.

Moving HSA funds does not alter eligibility requirements or contribution limits. You must still be enrolled in a high-deductible health plan (HDHP) to contribute, and annual contribution limits still apply. However, consolidating multiple HSAs can simplify record-keeping and potentially reduce overall fees, making it easier to manage your healthcare savings.

Tax Reporting for HSA Transfers

Understanding tax implications and reporting requirements is important when moving Health Savings Account funds. The specific forms and actions required depend on the method chosen.

For a direct trustee-to-trustee transfer, the process is generally considered a non-reportable event for the account holder. Since the funds move directly between financial institutions, you typically will not receive a Form 1099-SA, which reports distributions from an HSA. This type of transfer does not need to be reported on your tax return, as it is not considered a taxable event or a distribution to you.

In contrast, a 60-day rollover does involve tax reporting. When you receive a distribution from your HSA for a rollover, your old HSA provider will issue a Form 1099-SA, “Distributions From an HSA, Archer MSA, or Medicare Advantage MSA.” This form will show the total amount distributed to you during the tax year.

Even though you receive a Form 1099-SA, if you successfully complete the rollover by depositing the funds into another HSA within the 60-day window, the distribution is not taxable. You must report this rollover on Form 8889, “Health Savings Accounts (HSAs),” as part of your tax return. On Form 8889, you will indicate that the distribution from your HSA was a rollover, ensuring it is properly accounted for as a non-taxable event. Maintaining thorough records of all transfer documentation, including statements from both the old and new HSA providers, is advisable for your tax records.