Can You Transfer HSA Funds to Another HSA?

Health Savings Accounts (HSAs) provide a tax-advantaged way for individuals with high-deductible health plans to save for qualified medical expenses. These accounts offer a triple tax benefit: contributions are tax-deductible, earnings grow tax-free, and withdrawals for eligible medical costs are tax-free. Account holders often consider moving their HSA funds for various reasons, such as seeking a new custodian with lower fees, better investment options, or simply consolidating multiple accounts into one manageable location. Understanding the process for transferring these funds is important for maintaining their tax-advantaged status and ensuring a smooth transition.

Methods for Moving HSA Funds

Individuals can indeed transfer funds between Health Savings Accounts, providing flexibility in managing their healthcare savings. There are two primary methods available for moving HSA funds from one custodian to another. These methods are direct trustee-to-trustee transfers and indirect rollovers, each with distinct procedures and implications.

A direct trustee-to-trustee transfer involves the funds moving directly from the current HSA custodian to the new HSA custodian without the account holder ever taking possession of the money. In contrast, an indirect rollover means the account holder receives the funds from their current HSA and then becomes responsible for depositing them into a new HSA within a specific timeframe.

Direct Transfers Between Trustees

A direct trustee-to-trustee transfer is typically initiated by the new HSA custodian, making the process straightforward for the account holder. The first step involves contacting the desired new HSA provider and expressing intent to transfer funds from an existing account. The new custodian will then provide the necessary forms, which usually require information about the current HSA, such as the account number and the current custodian’s contact details.

Once the forms are completed and submitted, the new HSA custodian will communicate directly with the old HSA custodian to facilitate the transfer of funds. This communication ensures that the money moves seamlessly from one institution to the other without passing through the account holder’s hands.

Processing times for direct transfers can vary, often taking between one to three weeks depending on the custodians involved. After the transfer is complete, the new custodian will typically send a confirmation statement or update the online account balance to reflect the newly received funds. This method is generally considered safer because it eliminates the risk of missing a deadline or mishandling the funds.

Indirect HSA Rollovers

An indirect HSA rollover involves the account holder directly receiving funds from their current HSA, which they must then redeposit into a new HSA. The account holder requests a distribution from their existing HSA custodian. The funds are typically sent via check or direct deposit to the individual.

A strict 60-day deadline applies to indirect rollovers, meaning the distributed funds must be deposited into a new HSA within 60 calendar days of receipt. Failing to meet this deadline results in the distributed amount being considered a taxable withdrawal, subject to ordinary income tax. Additionally, if the account holder is under age 65 or not disabled, a 20% penalty tax may also apply to the taxable amount.

The Internal Revenue Service (IRS) limits indirect HSA rollovers to one per 12-month period across all of an individual’s HSAs. This limitation applies from the date funds are received from the previous rollover, not from the date of the distribution.

Reporting Transfers for Tax Purposes

For any distributions from an HSA, including those intended for rollover, the current HSA custodian will issue Form 1099-SA, “Distributions From an HSA, Archer MSA, or Medicare Advantage MSA.” This form reports the total amount distributed from the account during the year in Box 1.

For indirect rollovers, where funds are received by the account holder and then redeposited, the transaction must be reported on Form 8889, “Health Savings Accounts (HSAs).” On Form 8889, the amount from Box 1 of Form 1099-SA is entered, and then the portion that was rolled over into another HSA within the 60-day window is specifically indicated. This ensures the IRS understands the distribution was a non-taxable rollover rather than a taxable withdrawal.

Direct trustee-to-trustee transfers are generally not reported as distributions to the account holder on Form 1099-SA, as the funds never directly pass through the individual’s control. However, the new HSA custodian will typically issue Form 5498-SA, “HSA, Archer MSA, or Medicare Advantage MSA Contributions,” reporting any contributions made, including those from a direct transfer. Accurate reporting on these forms is essential to avoid potential tax discrepancies or penalties from the IRS.