Taxation and Regulatory Compliance

How to Rollover an HSA to Another HSA

Learn how to successfully roll over your HSA. Get a complete, step-by-step guide to transferring your Health Savings Account funds.

Health Savings Accounts (HSAs) offer a tax-advantaged way to save for current and future medical expenses. These accounts provide a unique blend of tax benefits, including tax-deductible contributions, tax-free growth, and tax-free withdrawals for qualified medical costs. Individuals often consider moving their HSA funds to a different provider to seek lower fees, better investment options, or simply to consolidate multiple accounts, optimizing fund management while maintaining health savings benefits.

Understanding HSA Rollover Methods

When moving funds between Health Savings Accounts, two primary methods are available: a direct trustee-to-trustee transfer and an indirect rollover. Each method carries distinct rules and implications. Understanding these differences is important for a smooth and compliant transfer.

A direct trustee-to-trustee transfer involves the current HSA custodian sending funds directly to the new HSA custodian. This method is straightforward and secure. The Internal Revenue Service (IRS) does not count direct transfers as rollovers, meaning there are no limits on how many times an individual can perform this type of transfer within a year. Funds moved this way avoid immediate tax consequences, maintaining their tax-advantaged status.

An indirect rollover, by contrast, gives the account holder temporary possession of the funds. The current HSA custodian distributes the funds to the individual, who then has 60 days to deposit the money into a new HSA. This method is subject to a strict “one-rollover-per-year” rule, meaning an individual can only complete one indirect HSA rollover within any 12-month period. Failing to deposit the funds within the 60-day window or exceeding the one-per-year limit can result in the entire amount being treated as a taxable distribution, incurring income tax and a 20% penalty.

Preparing for Your HSA Rollover

Before initiating an HSA rollover, gathering all necessary information and completing preparatory steps is a prudent approach. This helps ensure a seamless transition of funds between custodians. Accurate data and proper documentation are fundamental to avoiding delays or complications.

Collect specific details from your current HSA custodian. This includes your account number, routing information, and any forms they require for outgoing transfers or withdrawals. Some custodians may have specific instructions or forms for closing an account or initiating a transfer, which can be found on their website or by contacting their customer service department. Understanding their procedures upfront will streamline your request.

Research and select your new HSA custodian and gather their account details. You will need information such as their account numbers, routing numbers, and any specific forms for receiving incoming transfers or rollovers. The new custodian’s website provides these forms, often labeled as “HSA Transfer Request Form” or “HSA Rollover Form”. Ensure you understand if the new custodian requires you to initiate the transfer directly with them or if you must request the funds from your old custodian first.

When completing any forms, accurately input all personal and account information. For a direct transfer, the new custodian will provide a transfer request form that authorizes them to communicate with your old custodian to move the funds directly. For an indirect rollover, you will complete a withdrawal request form with your old custodian to receive the funds yourself. Double-check all fields to prevent errors that could delay the transfer.

Completing Your HSA Rollover

With all preparatory steps finished, the execution of your HSA rollover can begin. The process will vary depending on whether you chose a direct trustee-to-trustee transfer or an indirect rollover. Following the specific procedural steps for your chosen method is important for a successful transfer.

For a direct trustee-to-trustee transfer, you will submit the completed transfer request form to your new HSA custodian. This form authorizes the new custodian to contact your current HSA provider and arrange the direct movement of funds. The new custodian then communicates with your old custodian to facilitate the transfer, which can take two to eight weeks to complete. During this period, you may see your old HSA balance go to zero before the funds appear in your new account, which is a normal part of the process.

If you opted for an indirect rollover, your current HSA custodian will issue the funds to you, by check or electronic transfer. Upon receiving these funds, you must deposit the entire amount into your new HSA account within 60 calendar days. Track this 60-day window meticulously, as missing the deadline can lead to significant tax penalties. Once the funds are deposited, they are available for use within a few business days.

Throughout the transfer process, monitor the progress of your funds. You can track the status through your new custodian’s online portal or by contacting their customer service. Once the funds have arrived in your new HSA, confirm the balance and ensure all transferred amounts are accurately reflected.

After Your HSA Rollover

Once your HSA rollover is complete and the funds are settled in your new account, there are important follow-up actions and considerations regarding record keeping and tax reporting. Proper management post-rollover helps maintain compliance and ensures you have a clear financial history.

Retaining all relevant documentation from both your old and new HSA custodians is recommended. This includes copies of transfer request forms, confirmation statements, and any communication related to the rollover. These records serve as proof of the transfer and can be valuable for future reference or in case of any discrepancies.

Tax reporting requirements differ depending on the rollover method used. For indirect rollovers, your old HSA custodian will issue Form 1099-SA, reporting the distribution you received. Your new HSA custodian will issue Form 5498-SA, which reports contributions made to your HSA, including the rollover amount. While Form 5498-SA is for informational purposes and does not need to be filed with your tax return, you will need to report the rollover on IRS Form 8889, Health Savings Accounts (HSAs) and Other Tax-Favored Health Plans, when filing your annual tax return. Direct trustee-to-trustee transfers do not require specific reporting on your tax return beyond regular account statements, as the funds never directly pass through your hands.

Verify that the transferred funds have arrived correctly in your new account and are allocated according to your investment preferences. If you had investments in your previous HSA, you may need to re-establish those or select new investment options with your new custodian. This step ensures your funds continue to grow in a manner consistent with your financial goals.

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