Income

HSA Rollovers Explained: How They Work

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A health savings account (HSA) helps you sock away money for unexpected medical expenses while providing you with distinct tax benefits. Unlike with flexible spending accounts (FSAs), your HSA funds don’t expire. Your HSA money rolls over into the next year and stays in the account. But you can move those funds to a new account via an HSA rollover.

What is an HSA rollover?

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HSA withdraws are tax-free for qualified medical expenses.

An HSA rollover allows you to move unused HSA funds into another HSA account with a different provider that may offer lower fees, better investment options, and other perks.

If you have an HSA through your employer, you could move it to one with a different company. And if you open an HSA on your own, you can rollover your HSA from one financial institution to another.

Why do an HSA rollover?

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An HSA rollover can be a good idea if you found a different provider that better suits you.

If you have an HSA through your employer and change jobs or become unemployed, your HSA funds are still yours to keep. So you can rollover your HSA to a new employer or to a financial institution that offers HSAs.

In some cases, your old employer may allow you to keep your HSA with them and make withdrawals when you need to. However, some employers may add on additional HSA fees if you leave an account with them after you leave the company. So it may be better to rollover your HSA to a new employer that offers one or to a financial institution that offers an HSA product that best meets your needs.

It’s also important to note that employer-sponsored HSAs typically limit your HSA investment options to a static menu. Large brokerage firms may allow you to invest your HSA dollars in a variety of options like the following.

  • Mutual funds
  • Exchange-traded funds (ETFs)
  • Stocks
  • Fixed-interest accounts

So it also may be wise to roll over your employer-sponsored HSA to one at a financial institution, especially if your employer doesn’t make contribution matches.

Additionally, you may find that another HSA provider offers an HSA with lower fees or investment options that better meet your goals and needs. In this case, an HSA rollover could also be a good decision.

How to do an HSA rollover

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You can do an HSA rollover online.

Before you rollover your HSA funds, you need to open your new HSA account with the provider of your choice. We produced reviews of the Fidelity HSA and the Schwab HSA to help you see if any of these is right for you.

After you open your new account, there are two main ways to initiate an HSA rollover.

Trustee-to-trustee direct transfer: With this option, you instruct your current HSA provider to directly transfer funds to another HSA account in your name.

HSA check rollover: In this situation, your HSA provider sends you a check for the HSA balance. You then have 60 days to deposit the check into your new HSA account.

It’s important to note that if you get a check for the HSA balance, you must deposit the check into your new HSA account within 60 days. Otherwise, it’s considered a non-qualified withdrawal and you’d owe income taxes on the distribution as well as a 20% tax penalty if you’re under the age of 65.

This is why a direct transfer or trustee-to-trustee transfer (sometimes called an in-kind transfer) may be a better option. Your HSA money would be directly transferred to your new account from one provider to another without you needing to do much other than fill out a few forms. It’ll also allow you to bypass the risk of taxes and penalties on the rollover.

Why we covered this

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It’s important to be aware of key HSA rules.

HSAs can be effective tools in helping you save for medical expenses and they can also be useful retirement savings accounts. But not all HSAs are created equal. If you have an HSA, you may find that a different provider offers lower fees, better investment options, or more useful features. In this case, you can move your HSA assets to a different provider through an HSA rollover. But it’s important to know the rules in order to avoid taxes and penalties. So we constructed this guide to give you an overview of HSA rollovers and how they work.

If you want to learn more about HSAs, check out our regularly-updated HSA main page for the latest coverage.

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