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If you have unused funds in your health savings account (HSA) you may be wondering what happens to that money if it goes unused. Whether you’re thinking about changing jobs or just going into a new year, the good news is, the money is yours! Looking for more details about carrying over funds or thinking about consolidating HSA accounts? Read on.
Unlike most flexible spending accounts (FSAs) and health reimbursement arrangements (HRAs), unused funds in an HSA automatically carry over to the next year. Even if your employer provided the account and made contributions, the account belongs to you, so you can roll over any remaining funds every year.
If you have multiple HSA accounts from previous jobs, you may find it helpful to consolidate them all into one. That involves closing one account and transferring the remaining funds into a new HSA, which you will have to request from your plan provider.
Before you decide to consolidate HSA funds, be sure to familiarize yourself with the potential monetary implications. Some providers may charge monthly maintenance fees, or charge to open or close an account. Consult with a financial advisor about the possibility of tax ramifications. Typically, consolidating accounts is a tax-free process but it can vary by state and situation. Lastly, you may want to think about your investment options since HSA funds can be invested in stocks, bonds, and mutual funds, for example.
It’s a pretty simple process to combine HSA accounts, but there are a few ways to go about it.
One option is an HSA rollover. To complete an HSA rollover, you need to request one with your current HSA provider by letting them know you want to close the account and move your funds to a different provider account. Your HSA provider will send you a check, and you’ll deposit it into the new account.
The Internal Revenue Service (IRS) requires that you reinvest the money into your new account within 60 days. If you don’t make this deadline, the IRS will consider the money a taxable contribution, meaning it’s subject to income tax. The IRS will hit you with a 20% penalty for withdrawing the money for a nonqualified purpose. You’re only allowed to do this rollover method once every 12 months.1
A trustee-to-trustee transfer allows you to move funds from one HSA to another without taking possession of the money. To complete a trustee-to-trustee transfer, you’d contact the current trustee administering your HSA and tell them you want the money moved to a different HSA provider. Instead of sending you a check, the trustee will move and redeposit the funds for you, so you don’t need to touch the money.
Using this method helps eliminate the risk of incurring any tax or penalties. Plus, there’s typically no limit on how many times you can do this per year.
If the money in your HSA is invested in securities — like stocks, bonds, and mutual funds — then you may be eligible for an in-kind transfer. This method allows you to move investment securities into another HSA.
However, not all HSA providers allow this type of transfer. Review your provider’s HSA transfer rules to see if they allow it and what the restrictions might be. If your provider doesn’t allow for in-kind transfers, you may need to liquidate your investment funds and transfer them yourself. Just keep in mind that this could trigger some tax penalties in certain states. It may be a good idea to consult a tax professional or financial advisor before pursuing this type of transfer.
A lesser-known type of HSA transfer lets you move a portion of your individual retirement account (IRA) into an HSA. This is called an IRA-to-HSA rollover. You can roll over funds from both a traditional and a Roth IRA into an HSA, but this can only be done once in your life.1 This type of transfer will count toward your total HSA contribution limit for the year, meaning your allocated contributions will be reduced by the amount of money you transfer over. You’ll also need to remain covered by a high deductible health plan (HDHP) for 12 months — failure to do so may result in tax penalties.1
1 “Publication 969 (2022), Health Savings Accounts and Other Tax-Favored Health Plans” IRS, 2023.
Nothing in these materials is intended to apply to a particular individual's financial situation.
This article is intended to provide general information about insurance. It does not describe any Metropolitan Life Insurance company product or feature.