How to Transfer Your HSA to a New Employer

A Health Savings Account (HSA) serves as a tax-advantaged savings vehicle specifically designed for healthcare expenses. These accounts offer a unique benefit: they are owned by the individual, not the employer. This individual ownership provides flexibility, allowing the account holder to maintain control over their funds even when changing employment. Understanding this personal ownership is the first step in managing an HSA effectively throughout one’s career transitions.

Understanding HSA Portability

Health Savings Accounts are portable, meaning funds belong to the individual and move with them regardless of employment changes. This portability distinguishes HSAs from other employer-sponsored health benefits. Account holders often transfer funds to consolidate multiple accounts from previous employers into a single account. This consolidation simplifies record-keeping and can reduce administrative fees that apply to inactive accounts.

Another motivation for transferring funds is seeking a new HSA custodian with lower fees or more investment options. Some custodians charge monthly maintenance fees or other charges that can erode savings, especially if the employer no longer covers these costs. Consolidating funds into a single account can also help meet minimum balance requirements to access investment features, allowing funds to grow tax-free. Before transfer, gather account number and contact details from the current provider, and obtain setup details and transfer forms from the new custodian.

Direct Transfer Process

The direct transfer, also known as a trustee-to-trustee transfer, is the most straightforward and tax-efficient method for moving HSA funds. This process involves funds moving directly from the current HSA custodian to the new one without the account holder taking physical possession. To initiate a direct transfer, the account holder contacts the receiving HSA custodian, which is the new provider or existing personal HSA custodian.

The receiving custodian provides the necessary transfer forms, which often require information about the old account, such as the account number and current custodian’s name. Once completed, the new custodian coordinates with the old one to facilitate the transfer. This direct movement of assets ensures the transfer is not considered a distribution or new contribution for tax purposes, and is not subject to income tax, penalties, or annual contribution limits.

Direct transfers are not limited by the “once every 12 months” rule that applies to rollovers, allowing multiple transfers within a year. While efficient, the timeframe can vary depending on the responsiveness of both custodians, typically ranging from two to eight weeks. If the HSA includes invested funds, the current custodian may require liquidation before transfer, which could have state tax implications.

Rollover Process

An alternative method for moving HSA funds is a 60-day rollover, less common than a direct transfer, involving the account holder temporarily taking possession of funds. In this process, the current HSA custodian distributes funds directly to the account holder, typically via check or electronic transfer. The individual then has a strict 60-day window from the date of receipt to deposit the full amount into a new HSA.

The “once every 12 months” limitation means an individual can only perform one such rollover within any 12-month period across all their HSAs. Failing to redeposit funds within the 60-day timeframe results in tax consequences; the entire amount becomes taxable income and may be subject to a 20% penalty if the account holder is under age 65 and not disabled. Custodians issue Form 1099-SA, “Distributions From an HSA, Archer MSA, or Medicare Advantage MSA,” to report the distribution, and Form 5498-SA, “HSA, Archer MSA, or MA MSA Information,” to report the contribution to the new account.

This method might be used in rare circumstances where a direct transfer is not feasible, but it carries higher risks due to strict deadlines and potential tax implications. The account holder is responsible for ensuring compliance with the 60-day rule and the once-per-year frequency limit to avoid penalties. Reporting the rollover accurately on IRS Form 8889 confirms to the IRS that the funds were not a taxable distribution.

Post-Transfer Considerations

After an HSA transfer is complete, several steps help ensure effective account management. The first step involves confirming the successful transfer of funds by verifying the balance with the new HSA custodian. This ensures all expected funds have arrived and are accurately reflected in the new account.

Following confirmation, individuals should address the status of their old HSA account. If the account was not automatically closed, contact the previous custodian to formally close it and ensure a zero balance. This prevents lingering fees or administrative issues. When starting a new job, individuals can set up new payroll contributions to their chosen HSA.

Many HSA custodians offer investment options, allowing funds to grow tax-free. Reviewing investment options with the new custodian and allocating funds according to personal financial goals can maximize the HSA’s long-term growth potential. Retain all transfer documentation, including forms and confirmations from both old and new custodians. These records, along with tax forms like Form 1099-SA and Form 5498-SA, are important for tax purposes, even though direct transfers are typically not taxable events.