Can You Transfer an HSA Account to Another Bank?

Health Savings Accounts (HSAs) are tax-advantaged savings vehicles for healthcare expenses. These accounts offer a “triple-tax advantage” where contributions are tax-deductible, earnings grow tax-free, and qualified withdrawals are also tax-free. Individuals often move their HSA to a different financial institution for lower fees, better investment options, or improved customer service. It is possible to transfer an HSA, allowing account holders to consolidate funds or optimize benefits.

Methods of Transferring an HSA

HSA funds can be transferred through two methods: a direct trustee-to-trustee transfer or an indirect rollover. Each method has distinct procedures and rules.

A direct trustee-to-trustee transfer involves the current HSA provider sending funds directly to the new provider. This method is preferred due to its simplicity and absence of tax implications or frequency limits. There is no restriction on how many direct transfers an individual can make.

An indirect rollover means the account holder receives funds from the old HSA provider, typically via check, and deposits them into the new HSA. To remain tax-free, strict IRS rules apply: the “60-day rule” requires funds to be deposited within 60 days of withdrawal, and the “once-per-year rule” permits only one indirect rollover within any 12-month period across all HSAs. Missing these deadlines can result in taxable income.

Choosing Your New HSA Provider and Gathering Information

Before initiating a transfer, carefully consider potential new HSA providers and gather information. Selecting a new provider involves evaluating factors to ensure the new account aligns with your financial goals and healthcare spending habits. This helps you choose a provider that offers the best value and services.

When choosing a new HSA provider, compare:
Administrative fees, including monthly maintenance fees and potential transfer-out fees (typically $20-$50).
Minimum balance requirements for waived fees (often $1,000-$5,000).
Investment options, associated fees, and minimum investment thresholds (e.g., $1,000-$2,000).
Customer service quality, ease of use for online platforms or mobile apps, and availability of features like debit cards.

Once a new provider is chosen, gather all necessary information for the transfer. This includes accurate account numbers for both the existing and new HSA. Contact information for the current HSA custodian will be needed, as the new provider may coordinate the transfer. The new HSA provider will typically supply specific forms or instructions for incoming transfers, requiring details from your existing account.

Initiating and Completing the Transfer Process

After selecting a new HSA provider and collecting required information, initiate and complete the transfer. Steps vary depending on whether a direct trustee-to-trustee transfer or an indirect rollover is chosen. Each process requires specific actions to ensure funds are moved correctly.

For a direct trustee-to-trustee transfer, contact the new HSA provider. They often have forms authorizing them to request funds directly from your old provider. Complete and submit these transfer authorization forms, providing account details and custodian information. The new provider handles the communication and fund movement, which can take 3 to 8 weeks, though electronic transfers may be quicker (3-5 business days). Monitor your account to confirm completion, as the old account balance might show as zero before funds appear in the new account.

Executing an indirect rollover places more responsibility on the account holder. Contact your old HSA provider to request a distribution or withdrawal. Funds are often sent via check, which you must manually deposit into your new HSA. Deposit these funds within the 60-day timeframe to avoid tax penalties. This method requires careful tracking to ensure IRS compliance.

Understanding Tax Implications and Reporting

Understand the tax implications and reporting requirements for HSA transfers to maintain the funds’ tax-advantaged status. While most transfers are tax-free, specific rules must be followed to avoid penalties. Proper reporting ensures compliance.

Direct trustee-to-trustee transfers are not taxable events for the individual and do not need to be reported on your tax return. The transaction is a direct movement of assets between financial institutions. Indirect rollovers are also tax-free, provided the “60-day rule” and the “once-per-year rule” are followed.

If an indirect rollover fails to meet the 60-day deadline or the once-per-year frequency limit, the distributed amount becomes subject to income tax. If the account holder is under age 65 and not disabled, the non-qualified distribution may be subject to an additional 20% penalty. This penalty applies to the portion not used for qualified medical expenses.

For tax reporting, your old HSA provider will issue Form 1099-SA, “Distributions From an HSA,” for any distributions, including indirect rollovers. The new HSA provider will issue Form 5498-SA, “HSA Contributions Information,” to report contributions, including funds from an indirect rollover. Both forms are informational. Use the information from them to complete Form 8889, “Health Savings Accounts (HSAs),” and file it with your tax return to report HSA contributions and distributions.