How to Move HSA Funds: Rollovers and Transfers

A Health Savings Account (HSA) serves as a tax-advantaged savings vehicle designed to help individuals cover qualified medical expenses. These accounts are typically available to those enrolled in a high-deductible health plan (HDHP). Account holders may choose to move their HSA funds for various reasons, such as consolidating multiple accounts, seeking different investment options, or transitioning to a new HSA provider.

Understanding HSA Fund Transfer Methods

There are two primary methods for moving HSA funds: a direct trustee-to-trustee transfer and a 60-day rollover. A direct trustee-to-trustee transfer involves the movement of funds directly between two HSA custodians without the funds ever being disbursed to the account holder. This method is generally considered simpler and carries fewer risks.

Conversely, a 60-day rollover entails the account holder receiving a distribution from their current HSA. The account holder then has a strict 60-day window to redeposit these funds into a new HSA. This method gives the account holder temporary possession of the funds, but it also introduces the risk of missing the deadline, which can lead to tax implications and penalties.

Initiating a Direct Trustee-to-Trustee Transfer

Initiating a direct trustee-to-trustee transfer requires gathering specific information from both your current and new HSA custodians. The new HSA custodian typically provides the necessary transfer request forms, which authorize them to initiate the transfer from your existing account.

These forms are usually accessible through the new custodian’s online portal, their website, or by contacting their customer service department. It is important to accurately complete all informational fields on the new custodian’s transfer form, ensuring all necessary details are provided for the transfer request. This includes specifying whether it is a full or partial transfer of funds.

Once the form is completed, you submit it to the new HSA custodian. They will then communicate directly with your old custodian to facilitate the transfer of assets. The account holder generally does not need to interact with the old custodian once the form is submitted to the new one.

The processing time for a direct trustee-to-trustee transfer can vary, typically taking between one to three weeks. You will usually receive notifications from both the new custodian when the funds are received and the old custodian when the funds are disbursed, confirming the completion of the transfer. There is no limit to the number of direct trustee-to-trustee transfers an individual can perform in a year.

Performing a 60-Day Rollover

Performing a 60-day rollover involves a precise set of steps. Before initiating this process, confirm your current HSA account details and ensure your new HSA account is established and ready to receive the funds. Missing the 60-day deadline can result in the entire distribution being considered a taxable withdrawal, subject to income tax and a potential 20% penalty if you are under age 65.

To begin, you must contact your current HSA custodian and request a distribution of your funds, explicitly stating that it is for a rollover. Your custodian may issue a check made out to you or offer an electronic transfer to your personal bank account. Once you receive these funds, the 60-day clock begins the day after you take possession of the distribution.

It is your responsibility to deposit the full amount into your new HSA account within this 60-day window. Keeping a clear record of the date you received the funds is important to ensure timely redeposit. This type of rollover is limited to one per any 12-month period across all your HSAs.

Tax Reporting for HSA Fund Transfers

For direct trustee-to-trustee transfers, these events are generally considered non-reportable and non-taxable. Since the funds move directly between financial institutions without the account holder taking possession, no tax forms are typically issued for these transactions, and they do not affect your tax return.

In contrast, 60-day rollovers are reportable events, even though they can be non-taxable if completed correctly. When you perform a 60-day rollover, the distributing HSA custodian will issue Form 1099-SA, “Distributions From an HSA, Archer MSA, or Medicare Advantage MSA,” by January 31 of the following year. This form reports the gross distribution amount in Box 3.

The receiving HSA custodian will later issue Form 5498-SA, “HSA, Archer MSA, or Medicare Advantage MSA Contributions Information,” typically by May 31. This form reports the contributions made to your HSA, including any rollover amounts. When filing your income tax return, you must report the rollover on Form 8889, “Health Savings Accounts (HSAs).” On this form, you will indicate the gross distribution from your Form 1099-SA and then specify that the amount was rolled over, which ensures it is treated as a non-taxable event.