How to Rollover Your Health Savings Account

Health savings accounts (HSAs) are powerful financial tools that make planning for future medical expenses much easier. With personal and employer HSA contributions, this account can grow substantially throughout your life. The result is a sizeable nest egg with several tax advantages.

The great thing about an HSA is that it sticks with you. Unlike a flexible spending account (FSA), it's not tied to your employer. Therefore, you can roll over your HSA from one provider to the next. But how do you do it?

HSA Rollover Basics

To roll over an HSA is to move your funds between providers. There are many reasons to consider doing this.

One of the most common is to take advantage of lower expense ratios and maintenance fees. Expense ratios refer to the operating costs paid to invest your contributions. A higher expense ratio means you pay more fees for your HSA to grow. These fees are outside of additional custodial fees you might pay.

Many people also roll over their HSA to consolidate several accounts into one to simplify management. Whatever the case, you can do a rollover once every 12 months. However, there are some rules to follow.

How to Rollover Your HSA

Rolling over an HSA requires communicating with your new and existing HSA.

Contact your existing HSA and request a check or direct deposit of the funds in your HSA. After this request, your old provider will send you a lump sum including all your contributions, your employer HSA contributions and any growth up to that point. Then, you must set up another HSA with a new provider.

Here's something important to remember: You only have 60 days to deposit the funds you receive from your old HSA provider into your new HSA. If you go beyond the 60-day limit, you will face steep penalties. The IRS will levy income tax on the amount you roll over and charge a 20 percent penalty!

Fortunately, those penalties don't apply if you roll over the money within 60 days.

Another option is to request a trustee-to-trustee transfer. Many HSA providers allow you to do that online. With a trustee-to-trustee transfer, you don't have to worry about receiving a deposit or check.

Read a similar article about use HSA toward family planning here at this page.