If you have unused funds in your health savings account (HSA), you may be curious about what happens to that money if it goes unused. Whether you’re considering 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.
Do HSAs carry over to the next year?
Unlike many flexible spending accounts (FSAs) and health reimbursement arrangements (HRAs), unused HSA funds automatically carry over to the following year.1 Even if your employer provided the account and made contributions, the account belongs to you — so any remaining funds are carried over every year.2
Are HSAs portable if you leave your job or retire from the workforce?
Yes, HSAs are portable, which means you can keep your HSA if you quit your job, are terminated, or retire and leave the workforce entirely.2
Can you transfer funds from one HSA to another?
If you've held onto multiple HSA accounts from previous jobs, you may find it helpful to consolidate them all into one. That involves closing one account and either transferring or initiating a rollover of the remaining funds into a new HSA.2 You can request this action through your provider. Consolidating accounts may mean you pay lower fees, and you’ll have access to all your HSA funds in one account.
Things to consider when transferring HSA funds
Before you decide to consolidate your HSA funds, make sure to familiarize yourself with the potential monetary implications. Some providers may charge fees to open or close an account, along with potential monthly maintenance fees.1 Consider consulting with a financial advisor to learn about the possibility of tax ramifications. Typically, consolidating accounts is a tax-free process, but it can vary by state and situation.2
Finally, you may want to consider your investment options — since HSA funds can be invested in stocks, bonds, and mutual funds, for example.
HSA rollovers and HSA transfers
It’s a pretty simple process to combine HSA accounts, but there are a few ways to go about it.
One consolidation option is an HSA rollover. To complete an HSA rollover, you’ll generally need to request one from your current HSA provider — just let them know you want to close the account and move your funds to a different provider account. Your provider can send you a check or deposit the funds in your bank account. Then, you’ll deposit the money into your new account. Any rollover funds aren’t counted toward your contribution limit.2
The Internal Revenue Service (IRS) requires that you reinvest the funds 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 may also hit you with a 20% penalty for withdrawing the money for a nonqualified purpose. What’s more, you’re only allowed to do this rollover method one time every 12 months.2
A trustee-to-trustee transfer allows you to move money from one HSA to another without taking possession of the funds. To complete this type of transfer, you’d contact the trustee who currently administers your HSA and tell them you want the money moved to a different HSA provider. Rather than sending you a check, the trustee will move and redeposit the funds into the new HSA for you, so you don’t need to touch them.2
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.2 This can make it a great way to consolidate multiple HSAs into one.
In-kind investment transfer
If the money in your HSA is invested in securities — like stocks, bonds, and mutual funds — then you might be eligible for an in-kind transfer. This method allows you to move investment securities into an HSA. However, not many HSA providers will allow this type of transfer. Review your provider’s HSA transfer rules for potential restrictions. If your provider doesn’t allow for in-kind transfers, you may have to withdraw and transfer your investment funds yourself. However, this could trigger some tax penalties.
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 it can generally only be done once in your life.2 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 be covered by a high-deductible health plan (HDHP) for 12 months — failure to do so may result in tax penalties.2