How to Transfer Your HSA and What to Know

Health Savings Accounts (HSAs) offer a unique way to save for healthcare expenses with significant tax advantages. These accounts are “triple tax-free,” meaning contributions are tax-deductible, earnings grow tax-free, and qualified withdrawals are also tax-free. HSAs are portable; the funds belong to the account holder, not the employer or health plan. This allows individuals to manage and move their HSA as circumstances change, ensuring funds remain accessible and can grow over time.

Reasons for Transferring Your HSA

Individuals often transfer their Health Savings Account for several practical reasons. Many seek providers with lower administrative fees, as high fees can erode account balances. Consolidating multiple HSA accounts into a single one is another frequent reason, simplifying financial management and providing a clearer overview of healthcare funds.

Access to better investment options also drives transfer decisions. Some HSA custodians offer limited or no investment choices, while others provide a broader range of opportunities like mutual funds, stocks, or exchange-traded funds. Moving to a provider with more robust investment platforms can help account holders grow savings more aggressively for future medical expenses. Improved customer service or a more user-friendly online interface can also prompt a transfer.

When changing employers, individuals may find their new company partners with a different HSA provider. While it is permissible to keep multiple HSAs open, consolidating accounts can streamline tracking contributions and distributions, and reduce the complexity of tax reporting. Ultimately, transfers are driven by a desire to optimize costs, enhance investment potential, or simplify account management.

How to Transfer Your HSA Account

Transferring an HSA involves distinct methods, each with specific procedural requirements. The two primary methods are a trustee-to-trustee transfer (direct transfer) and a rollover (indirect transfer). Understanding the differences between these approaches is essential for a smooth and compliant movement of funds, ensuring the tax-advantaged status of the funds is maintained.

Trustee-to-Trustee Transfer (Direct Transfer)

A trustee-to-trustee transfer is the simplest and safest way to move HSA funds because the money never passes through the account holder’s hands. The current HSA custodian directly transfers the funds to the new custodian, eliminating the risk of missing a deposit deadline or incurring tax penalties.

To initiate a direct transfer, contact the new HSA custodian first. They will provide the necessary forms, such as a transfer authorization or direct transfer request form, which requires personal and account details for both the new and current HSAs. Ensure the new HSA account is already open and active before submitting the request.

Once completed, the signed transfer form is sent to the current HSA administrator for processing. The current custodian then directly sends the funds to the new custodian. This process usually takes three to six weeks for funds to become available. There is no limit on the number of trustee-to-trustee transfers an account holder can make, and they are not subject to the once-per-12-month rule.

Rollover (Indirect Transfer)

An HSA rollover, or indirect transfer, involves the account holder directly receiving funds from their current HSA custodian before redepositing them into a new HSA. This method gives the account holder temporary possession of the funds. A strict 60-day deadline applies: funds must be deposited into the new HSA within 60 days of receiving the distribution to avoid a taxable withdrawal and potential 20% penalty.

To perform a rollover, request a distribution from your current HSA provider, indicating it is for a rollover. The custodian will issue a check or electronic transfer. Upon receiving the funds, deposit the full amount into your new HSA account within the 60-day window. Use a rollover request form from the new custodian or a general contribution form for this deposit.

A limitation of the rollover method is that it can only be performed once every 12 months across all HSAs and IRAs combined. This rule applies from the date the funds are received. If multiple HSAs need consolidation or funds need to move more frequently, the trustee-to-trustee transfer method is generally preferred to avoid this frequency restriction and associated risks.

Tax Considerations for HSA Transfers

Understanding the tax implications of HSA transfers is important for compliance with Internal Revenue Service (IRS) regulations. Tax treatment differs significantly between trustee-to-trustee transfers and rollovers, primarily based on whether the account holder takes possession of the funds. Proper reporting on tax forms is essential to avoid unexpected tax liabilities or penalties.

For trustee-to-trustee transfers, the process is non-taxable and does not require reporting on an individual’s tax return. Since funds move directly between financial institutions without the account holder taking constructive receipt, the IRS does not consider it a distribution. This means no tax forms need to be filed for this type of transfer, maintaining the tax-advantaged status without reporting burden.

In contrast, rollovers (indirect transfers) involve the account holder receiving the funds, which the IRS considers a distribution. Consequently, the distribution from the old HSA will be reported on IRS Form 1099-SA, which is sent by the distributing custodian. The contribution to the new HSA will typically be reported on IRS Form 5498-SA by the receiving custodian. While Form 5498-SA is generally for informational purposes and not required to be filed with a tax return, Form 1099-SA necessitates reporting the transaction on IRS Form 8889, Health Savings Accounts, when filing income taxes.

On Form 8889, the total amount distributed from the old HSA, as shown on Form 1099-SA, must be reported. The portion of that distribution that was rolled over into a new HSA within the 60-day window is also reported. As long as the rollover adheres to the 60-day deadline and the once-per-12-month rule, the amount is considered a tax-free rollover. Failing to meet these requirements can result in the entire distributed amount being treated as taxable income, potentially subject to a 20% penalty if the account holder is under age 65 and the distribution is not for qualified medical expenses. Accurate and timely reporting on Form 8889 is crucial to confirm the tax-free nature of the rollover and prevent adverse tax consequences.