Important HSA Rollover Rules: How to Utilize them Efficiently

Have you found yourself in a situation where you might need to rollover your HSA?  If so, no worries!  There are a few HSA rollover rules that you need to keep in mind but they’re all very easy to follow as long as you take the time to understand them.

If you’re like me and the acronym of HSA, which stands for Health Savings Account, really gets you excited then guess what, you’re a total nerd!  I’m not saying that to make fun, I’m saying it as a term of endearment as I am that exact same way.  I personally think that an HSA is one of the underrated tools that you can use to get ahead in life. 

An HSA offers a triple-tax advantage that I thoroughly explain in a previous post but I will spare you from going through that again because that’s not why you’re reading this – you’re reading because you want to know how to efficiently rollover your HSA!

For starters, there are a few different times that you can, or should, rollover your HSA – let’s discuss!

1 – You want to rollover a previous HSA into a new HSA

Why would this occur?  Well, maybe you’re either quit or lost a job but you have a good chunk of change in your old employer’s HSA program and you want to move it into your new employer’s program.  So, what do you need to be aware of?

  • You can complete an HSA to HSA rollover as many times as you’d like, but not more than once every 12 months
  • HSA to HSA rollovers are 100% free
  • Your current HSA provider will send you a check with your current HSA amount and then you have 60 days to put that money into your new HSA
    • If you do not complete this new contribution then not only will you be taxed, you will owe a 20% penalty for dipping into that money.  In other words, don’t do this.  Don’t touch your HSA unless it is for health and medical expenses only.

To complete the HSA to HSA rollover, the process really is pretty simple.  You will just want to reach out to the new institution and tell them that you’d like to transfer from your current institution and then they will likely reach out to them for you or tell you that you need to reach out to the current institution. 

It really is pretty hands-off outside of a couple of phone calls that you will need to make and then some time will you wait for the check!

You always could leave your current HSA account open and active, but my personal preference is to have as few accounts as possible.  If they’re serving the same purpose, then there is no need to have more than one in my eyes.

2 – You want to rollover money from an IRA into an HSA

If you’ve had a major medical expense hit recently and your HSA isn’t as full as you’d like it, then this might be a great option for you.  Essentially, you can take some money that you might have tied up in an IRA until you’re 59 ½ and now you can transfer that into your HSA, so it is essentially able to be used immediately as long as it’s going to be used for a qualified medical expense.

For you to do this successfully, there are a few things that you need to keep in mind:

  • You have to be in an active HSA account for a minimum of 12 months after the transfer
  • You can only make this transfer occur once in your lifetime
  • The amount that you transfer counts towards your annual contribution limit
    • The 2019 annual contribution limit is $3500 for individuals, $7000 for couples and an additional $1000 for either individuals or singles if you’re over age 55 as a “catch up”

If you can take advantage of this properly then you’re really going to set yourself up really well. 

For instance, if you could put money into a Traditional IRA, which is pre-tax money when it goes in, and the transfer that money into the HSA, you’re going to be able to avoid paying the tax when you inevitably have to withdraw that money because the HSA is triple-tax-advantaged, meaning it’s not taxed going in, during, or being taken out of the account.

As a general rule of thumb, I would choose to only do any sort of HSA transfer if I felt like I really had to or that I was missing out on a major benefit.  For instance, maybe my employer chose a really crappy HSA provider and I wanted to go out and get my own (this is not the case as I use Fidelity and I absolutely love them). 

I could, theoretically, add my contributions of earned wages to my employer-provided HSA program and then transfer it once/year to my other HSA of choice.  This would allow me the ability to take advantage of whatever employee program I might have but physically use a different HSA that I might prefer using.

And if I was going to transfer money from my IRA to my HSA then I can promise you that it’s not something that I would do impulsively.  You only can do it once in your life, so I really challenge you to take a look and think about when the best time for you to do this might actually be.  If it was me, I would hold off as long as necessary and just continue to max out my HSA and my IRA. 

If for whatever reason things occurred that kept me from being able to max out my HSA in any particular year, that’s when I would really consider doing the rollover.  It would also greatly depend on the health of my HSA and the amount of cash that I have accumulated into that account.  If I had a lot of funds in my HSA then maybe I wouldn’t transfer those funds out my Roth IRA since I wouldn’t be gaining a tax advantage as I’d have already paid the taxes as those funds went into my account. 

But if I had money in a traditional IRA then I would 100% find a time to make my lifetime transfer but I’d just be sure to think about it and not make an impulsive decision.

Long story short, a lot of this just come down to your situation.  Think about what you want to accomplish and figure out your goals in life vs. where you are currently and use this information to make the most educated decision that you can!

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