Ready to switch your Health Savings Account (HSA) provider? Moving money can be tricky. And most HSA providers complicate it by adding fees or making the process difficult.
Discover the differences between an HSA trustee-to-trustee transfer and a direct rollover. And which is the safest and easiest method for you. Plus, learn how to transfer invested HSA assets, and the basics to filing your taxes for an HSA rollover.
Four reasons to Switch HSA providers
Not sure if you need to switch HSA providers right now? Here are four reasons why you may need to. Don’t let your hard-earned money be wasted—or lose opportunities to have it grow.
1. New employer contributes to HSA
If you have an existing HSA with one provider and start a new job, ask your new employer if they offer HSA contributions as a benefit. If they do, chances are they will require you to use the specific HSA provider that they partner with to help contribute.
For example, let us say you already have an HSA with one HSA provider. You happen to get a new job, and this employer offers HSA contributions as a benefit. To receive employer contributions, they require you to open up an account with a different HSA provider than the one you already have.
While having two separate HSA accounts is allowed, it could be more challenging to manage your money in two different places. If you want to take advantage of your employers contributing money, just be sure that what you contribute and what your employer contributes doesn’t exceed the maximum contribution limit.
2. High account fees
Charging fees is one of the easiest ways for financial providers to make money. Which is why so many providers have fees for varying reasons. Some charge fees to keep your account open, to receive paper statements, or even to close the account.
The whole point of an HSA is so you can save money for your future - so why spend your money on fees? Switching to an HSA provider with zero fees is an easy solution for this problem.
3. Lack of - or - poor investment options
One of the major benefits of an HSA is that you can invest your funds tax-free. Yet, some HSA providers don’t provide investment options - or make the process confusing. If your provider doesn't offer investment options, make a switch. Investing your HSA money can lead to long-term savings growth.
4. High investing thresholds
Some providers that offer investments require a minimum account balance. Those thresholds can be as high as $5,000 - which may not be possible. Especially if you’ve recently opened your HSA account.
If you want to invest, look for an HSA provider that allows you to invest without a threshold. Investing part of your funds can help you save for retirement. And with no minimum, you can begin investing sooner. And take advantage of compounding interest.
How to change your HSA provider
Ready to make the switch to your new HSA provider?
Every provider has its change preference: HSA transfer or rollover. But the decision lies in the hands of the account holder. Between the two options, choose the safest and easiest method for you.
What is the difference between a transfer and a rollover?
Both move your HSA funds between one account to another. However, a trustee-to-trustee transfer is a direct transfer from one HSA to another and can happen as often as necessary. During a rollover, your original HSA provider sends you a check, which you have 60 days to deposit in your new HSA or face tax penalities. The IRS limits account rollovers to once per year.
HSA trustee-to-trustee transfer
A trustee-to-trustee transfer is one of the more popular ways to transfer funds between HSA accounts. With this method, your original HSA provider makes a direct payment to the new account. The account holder never takes possession of the funds.
This method is usually the fastest method of transfer. There is no limit to the number of trustee-to-trustee transfers an account holder can make.
And this method helps avoid potential tax withholdings that may occur when transferring funds.
HSA direct rollover
Another method that you can perform is an HSA transfer through a direct rollover. This process involves receiving a check from your original HSA provider for the full amount of your account. Once you receive the check, it’s your responsibility to transfer (deposit) the money into the new account. The account holder has 60 days from withdrawal to deposit the funds.
If you miss the 60-day deadline, you can expect to pay income taxes on those funds, plus a 20% penalty on any remaining balance from the original account. Because of the penalty, this method can be one of the more risky methods for transferring funds. Once your original provider gives you the check, it's your responsibility to deposit it into your new HSA. The account holder (you) is limited to one HSA rollover every 12 months.
Can I transfer my invested HSA assets?
Yes. But, most HSA providers will ask you to cash-out your investments before moving your funds. Even worse, some will receive your transfer request, but ignore it if you have funds invested.
However, there are a few providers that will allow you to perform an In-Kind Transfer.
What is an in-kind investment transfer?
An in-kind transfer allows you to transfer your entire account from one HSA provider to another, as-is. This means that any invested funds transfer, still invested in the same shares, and all cash assets transfer as well.
If you have funds invested, alert your investment institution of the transfer.
Filing your taxes with an HSA transfer or rollover
If you do decide to change your HSA provider, you will need to report your transfer to the IRS.
IRS Form 8889
IRS Form 8889 is a document that details the activity that you made with your HSA during the calendar year.
We recommend consulting a tax professional to discuss filling out your IRS forms. It’s especially important if you perform a transfer or rollover. These could incur tax penalties and failure to log them could lead to an audit by the IRS.
Have more questions?
When it comes to transferring your HSA funds, it's best to consult a financial or tax professional. Everyone’s financial situation is unique. And you need to choose the safest and easiest method - for you - before changing your HSA provider.
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.