While the term “rollover” is often used when commanding your dog to do a cute trick or trying to get out of bed, it’s also used in the financial world as a way for you to move funds from one custodian to another.
Rolling over any account means you’re taking the funds from one account and putting them into a different one. Depending on the type of account, this could be a simple process or a very long one.
Within this post, we’ll discuss the different ways that you can move your Health Savings Account (HSA) funds from one provider to another with ease.
Why should you Rollover your HSA?
There are a few reasons why you would be moving your HSA funds from one custodian to another:
Change in Banking Provider: If you were assigned an HSA by an employer, and that HSA was then bought or sold to another company, there’s a chance that you’ll be forced to roll your account over to a new one. Most of the time when this happens, you will be required to double-check all of the information in your account to ensure that your assets are transferred properly. Depending on the situation, your provider won’t charge you transfer fees, because this is beyond your control. However, this is a good time for you to consider whether or not the custodian you’re moving to is one that fits your needs.
Investment Opportunities: One of the major benefits of an HSA is that you can invest your funds without having to pay taxes on them until you decide to liquidate them. Some HSA providers offer opportunities to invest your funds directly in their platform, and if you want to take advantage of this benefit, you may want to transfer to a custodian that offers this feature.
Decrease Fees: Some HSA providers have costly fees that can add up. On average, HSA customers pay over $26/year in hidden account fees. Whether that’s having a minimum balance amount or contributing too much to your account, these fees may be triggered without your knowledge and become a hassle. One of the reasons why individuals may decide to roll over their HSA is to avoid these fees and find a provider that has little-to-no fees for their account.
Now that you know some of the reasons why you may want to rollover your HSA, here are some ways that you can do it.
How to Rollover an HSA
While it may seem like there should be a standardized process on how to rollover an HSA, this is not the case. This process is entirely dependent on the provider that you currently have, and the new provider that you’re shifting your funds into.
There are a couple of different ways that you can move your HSA funds from one custodian to another. Here are three of the most common ways:
The IRS allows you to rollover your HSA one time every 12 months. When you request an HSA rollover from your current provider, they will deposit the entirety of your HSA to a bank account of your choice or they will send you a check with the full amount.
When you receive the funds from your provider, you have 60 days upon receipt to deposit these funds into a new HSA provider.
If you don’t submit these funds within 60 days, this could be considered a taxable distribution and you could be taxed regular income tax plus a 20 percent penalty.
This type of transfer should not affect your contribution limit, and if done correctly, it should not be included in your taxable income. Check with your HSA custodian and a licensed tax / financial expert if you have any questions.
A trustee-to-trustee transfer cuts out the process of having your funds taken out of your account, and instead initiates a transfer directly between your old HSA provider and your new provider of choice. This minimizes the chances that your funds can be considered a taxable distribution.
To initiate this transfer, you will be required to fill out a form from your current HSA provider. If you know what provider you will be transferring the funds to, ask them what information you’ll need to successfully complete a trustee-to-trustee transfer.
When the transfer is done properly, there should be no effect to your contribution limit and should not be included in your taxable income. There is no limit to the number of HSA trustee-to-trustee transfers each year.
IRA to HSA Transfer
While not directly a technical rollover from HSA to HSA, an IRA to HSA transfer is a strategic move that you can make once in a lifetime, so be absolutely sure that this is the right move that you want to make for your funds.
The reasoning for the limit on this transfer is because you can receive an extra tax advantage if done so properly. This could make a huge difference to your funds over a long period of time.
This transfer is available for both Traditional and Roth IRA’s, but not SEP or Simple IRAs.
The one major difference between this transfer and the others we discussed earlier is that an IRA to HSA transfer is considered part of your annual contribution to your HSA for that year. This means that you MUST be eligible to contribute to an HSA to make this type of transfer.
How to Rollover HSA Investments
One of the benefits of opening an HSA is that you’re able to invest those funds for the future. HSA investment growth is 100 percent tax-free! While you may have taken advantage of investing those funds in the HSA provider that you’re currently using, you may want to move them for different investment opportunities.
Transferring your investment funds are a little bit different than regular funds. Here’s how:
These types of transfers are intended for those who have HSA assets in liquid accounts, such as an investment account. More often than not, you will be required to liquidate these funds before moving them to another type of investment account.
You want to be careful doing this, because liquidating these assets may be considered taxable income in certain states.
Since this rule varies from state-to-state, we highly recommend checking with a local tax professional what the best practice is for initiating this type of transfer.
Things to Consider When Transferring Your HSA
Remember that transferring your HSA takes time. It can be a nerve-racking experience, especially if you have a substantial amount of money in your account, but this process can take two to six weeks to complete. If this is something that worries you, contact your representatives on both sides of the process for status updates once a week.
Another thing to consider when transferring your HSA is that you don’t need an HDHP to transfer your funds (unless you’re completing an IRA to HSA transfer). So as long as you’re not contributing to your account, you’re free to move from one provider to another as many times as you’d like.
The important thing about transferring your HSA funds is that you find the provider that fits your lifestyle and your needs. If your current HSA provider is not cutting it, consider rolling your funds over to a provider that works for you.
Disclaimer: the content presented in this article are for informational purposes only, and is not, and must not be considered tax, investment, legal, accounting or financial planning advice, nor a recommendation as to a specific course of action. Investors should consult all available information, including fund prospectuses, and consult with appropriate tax, investment, accounting, legal, and accounting professionals, as appropriate, before making any investment or utilizing any financial planning strategy.