How to Transfer From One HSA to Another

A Health Savings Account (HSA) serves as a tax-advantaged savings and investment vehicle specifically designed for individuals enrolled in a high-deductible health plan (HDHP). Funds within an HSA can be used for qualified medical expenses, and unlike some other health-related accounts, the money generally rolls over year after year. The portability of these accounts means that the funds are owned by the individual, allowing for transfers between different HSA providers to consolidate savings or seek better investment options.

Understanding HSA Transfer Options

When moving funds from one Health Savings Account to another, two primary methods are available: the direct trustee-to-trustee transfer and the indirect 60-day rollover. These methods differ significantly in how the funds are handled and the responsibilities placed on the account holder.

A direct trustee-to-trustee transfer involves the funds moving directly between the current HSA custodian and the new HSA custodian without the account holder physically receiving the money. Conversely, an indirect 60-day rollover means the account holder receives a distribution from their existing HSA. The individual then becomes responsible for depositing these funds into a new HSA within a specific timeframe. Understanding this fundamental distinction is important, as each method carries its own set of procedural requirements and rules. The choice between these two options depends on the account holder’s preference for direct handling versus custodial management.

Steps for Direct Trustee-to-Trustee Transfers

Initiating a direct trustee-to-trustee transfer typically begins by contacting the new HSA custodian where you wish to move your funds. Most new custodians will provide specific transfer forms designed for this process. These forms will require detailed information about your existing HSA, such as the current custodian’s name, account number, and the precise amount you intend to transfer.

After completing the transfer form with accurate details, submit it to your new HSA custodian. The new custodian then takes on the responsibility of communicating with your old HSA custodian to facilitate the transfer of assets. The process generally involves the new custodian sending the signed form to the old custodian, who then processes the request and sends a check or electronic transfer of funds. This type of transfer is generally not subject to limits on how frequently it can occur.

The timeline for a direct transfer can range from a few weeks to two months, depending on the processing times of both the originating and receiving custodians. Some custodians may require investments within the HSA to be liquidated to cash before a transfer can occur. It is advisable to confirm any specific requirements or potential fees with both institutions before initiating the transfer.

Executing an Indirect 60-Day Rollover

An indirect 60-day rollover involves the account holder temporarily taking possession of the HSA funds. This begins by requesting a distribution from the existing HSA custodian, who typically issues a check payable to the account holder. Upon receiving these funds, the account holder has a strict 60-day window to deposit the entire amount into a new HSA account.

Failing to deposit the funds within this 60-day period can result in the distribution being considered a taxable withdrawal, subject to income tax and potentially a 20% penalty if the account holder is under age 65. Additionally, the Internal Revenue Service (IRS) imposes a “one-rollover-per-year” rule for indirect rollovers, meaning you can only complete one such transaction within any 12-month period, starting from the date you receive the distribution. This rule applies across all your HSAs, not per account.

Careful adherence to the 60-day deadline and awareness of the one-per-year limitation is important when choosing this method. If you receive a check, the 60-day period begins on the day you receive it, not necessarily the date it was issued. It is essential to ensure the full amount received is redeposited into the new HSA to avoid any adverse tax consequences.

Post-Transfer Verification and Compliance

After any transfer, verify the successful completion. Confirm the funds have arrived in the new HSA account and the amount is correct. Check for any fees that may have been deducted, as some custodians may charge account closure or migration fees, typically around $25.

For indirect 60-day rollovers, specific tax reporting requirements apply. The old HSA custodian will issue Form 1099-SA, “Distributions From an HSA, Archer MSA, or Medicare Advantage MSA,” which reports the distributed amount. This form indicates a distribution occurred but does not specify if it was rolled over.

You must report this transaction on IRS Form 8889, “Health Savings Accounts (HSAs),” filed with your federal income tax return. On Form 8889, indicate the distributed amount and show it was properly rolled over, making it a tax-free event. Maintain thorough records of all transfer forms, statements from both custodians, and tax documents like Form 1099-SA for compliance and future reference.