The HSA 60-Day Rollover Rule Explained

A Health Savings Account, or HSA, provides a tax-advantaged way to pay for qualified medical expenses. These accounts are paired with high-deductible health plans and offer a triple tax benefit: contributions are deductible, growth is tax-deferred, and withdrawals for medical costs are tax-free. Account holders sometimes find it beneficial to move their accumulated funds from one HSA provider to another, perhaps to access better investment options or lower administrative fees. One common approach involves the account holder directly managing the transfer.

The HSA 60-Day Rollover Rule Explained

An indirect rollover, governed by the 60-day rule, is a process where you withdraw funds from your existing HSA and then deposit them into a new HSA. When you use this method, you take temporary possession of the money. The 60-day clock begins on the day you receive the funds from your old HSA custodian, not the date the check was mailed or the withdrawal was processed.

This method is also subject to a one-per-year limitation, as outlined in IRS Publication 969. An individual can only make one HSA rollover in any 12-month period. This one-per-year rule applies to the individual’s entire portfolio of HSAs, not per account. For example, if you have three separate HSAs, you can only perform a 60-day rollover from one of them within a 12-month timeframe.

This process differs from a direct trustee-to-trustee transfer, where the funds move directly between the financial institutions without you ever handling them. Direct transfers are not subject to the 60-day deadline or the one-per-year limit, making them a simpler and less restrictive option. Choosing the indirect rollover requires careful attention to these regulations to avoid tax consequences.

Required Information for an HSA Rollover

Before initiating a 60-day rollover, you must first gather specific details from your current HSA provider. This includes your account number and the custodian’s mailing address and phone number. You will also need to obtain the correct withdrawal form.

Simultaneously, you must establish a new HSA with a different provider before you can complete the rollover. Opening this new account requires providing personal information such as your Social Security number, date of birth, and physical address. Once the account is open, you will need the new custodian’s specific “rollover contribution” form, which is distinct from a regular contribution form.

When completing the paperwork, you must clearly indicate on the withdrawal form for your old HSA that the purpose of the distribution is for a rollover. On the new HSA’s deposit form, you must explicitly state that the funds are a rollover contribution. This ensures the deposit is not mistakenly counted toward your annual HSA contribution limit.

Executing the 60-Day Rollover

With the necessary forms prepared, you can begin the transfer process. The first action is to submit the completed withdrawal form to your old HSA custodian. This formally requests the distribution of your funds.

After the custodian processes your request, you will receive the funds, typically in the form of a check made payable to you. From the moment you receive this check, the 60-day countdown begins. Do not cash the check for personal use or deposit the funds into a non-HSA bank account, as this can jeopardize the tax-free status of the rollover.

The final step is to deposit the funds into your new HSA. You will endorse the check from the old custodian and submit it along with the completed rollover contribution form to the new HSA provider. You must ensure the new institution correctly codes the deposit as a “rollover contribution.” Always request a transaction receipt or confirmation statement as proof that the deposit was made within the 60-day window.

Tax Reporting for Your Rollover

You will use IRS Form 8889, Health Savings Accounts (HSAs), to report the rollover on your annual tax return. The total amount you withdrew from the original HSA is reported as a distribution on line 14a of this form.

To show that the funds were not used for personal expenses, you then enter the exact same amount on line 14b, which designates the portion that was rolled over. When completed correctly, the calculation on line 15, which determines the taxable amount, will result in zero. This demonstrates to the IRS that the distribution was not a taxable event.

Failing to deposit the funds into a new HSA within the 60-day period has significant tax consequences. The entire withdrawn amount becomes taxable as ordinary income for the year of the distribution. Furthermore, if you are under the age of 65, the amount is also subject to a 20% penalty.