Transferring Funds Between Health Savings Accounts

Quick answer

• Understand the two main HSA transfer methods: trustee-to-trustee and indirect rollovers.
• Trustee-to-trustee transfers are generally preferred as they don’t count against your annual contribution limit.
• Indirect rollovers require you to receive the funds, deposit them within 60 days, and can impact your contribution limit.
• Ensure the new HSA provider can accept your type of funds and verify their account details.
• Keep meticulous records of your transfer to avoid tax complications.
• Consult your current and new HSA administrators for specific instructions and forms.

Who this is for

• Individuals who have an HSA with one financial institution and wish to move their funds to a different provider.
• Those who are looking to consolidate their health savings accounts or move to an HSA with better investment options or lower fees.
• People who want to ensure the transfer process is completed correctly to avoid penalties or taxes.

What to check first (before you act)

Your HSA Goals and Timeline

Before initiating any transfer, clarify why you want to move your HSA and by when. Are you unhappy with your current provider’s fees, investment choices, or customer service? Do you have a specific provider in mind with better features? Understanding your motivation will help you choose the right transfer method and provider.

Current HSA Balance and Holdings

Know the exact amount you intend to transfer. Also, be aware of what assets are currently in your HSA. Some providers may have specific procedures for transferring investments versus cash. Check if your current HSA has any minimum balance requirements or if there are any fees associated with closing or transferring funds out.

Emergency Fund or Safety Buffer

Ensure you have a separate, accessible emergency fund before moving your HSA. While HSA funds are for medical expenses, unexpected needs can arise. You don’t want to be caught without liquid cash if an emergency strikes during the transfer process.

Existing Debt and Interest Rates

While not directly related to the HSA transfer itself, understanding your overall financial picture is crucial. If you have high-interest debt, prioritizing paying that down might be more financially beneficial than optimizing your HSA provider, depending on the interest rates.

Credit Impact

Transferring an HSA typically has no direct impact on your credit score. However, if the transfer process is mishandled and results in penalties or missed payments on other accounts due to mismanaged funds, it could indirectly affect your credit.

Step-by-step: Moving HSA Funds to Another HSA

1. Choose Your New HSA Provider

What to do: Research and select a new financial institution to hold your HSA. Compare their fees, investment options, customer service, and any other features important to you.
What “good” looks like: You’ve identified a provider that meets your needs and have their account opening information ready.
A common mistake and how to avoid it: Rushing into a decision without comparing providers. Avoid this by taking the time to read reviews and compare fee schedules.

2. Understand Transfer Methods

What to do: Familiarize yourself with the two primary methods: trustee-to-trustee transfer and indirect rollover.
What “good” looks like: You understand the differences, especially regarding contribution limits and timing.
A common mistake and how to avoid it: Confusing the two methods. Trustee-to-trustee is generally simpler and avoids contribution limit issues; indirect rollovers require more careful handling.

3. Initiate the Transfer with the New Provider

What to do: Contact your chosen new HSA provider and inform them you wish to transfer funds from an existing HSA. They will guide you through their specific process and provide necessary forms.
What “good” looks like: You have completed the new provider’s intake process and have any required paperwork.
A common mistake and how to avoid it: Starting the process with the old provider first. Typically, the new provider facilitates the transfer.

4. Provide Account Information

What to do: You will need to provide your current HSA account number and the name and contact information of your current HSA administrator to the new provider.
What “good” looks like: Accurate account details are submitted to the new provider.
A common mistake and how to avoid it: Providing incorrect account numbers or provider names. Double-check all details before submitting.

5. Complete Necessary Forms

What to do: Fill out any authorization forms required by both your current and new HSA providers. This grants permission for the funds to be moved.
What “good” looks like: All required forms are accurately completed and signed.
A common mistake and how to avoid it: Leaving sections blank or providing incomplete information. This can delay or halt the transfer.

6. Decide on Transfer Method (If Applicable)

What to do: If opting for an indirect rollover, the funds will be sent to you. If choosing trustee-to-trustee, the institutions handle it directly.
What “good” looks like: You’ve clearly communicated your preferred method and understand the implications.
A common mistake and how to avoid it: Not understanding that with an indirect rollover, you are responsible for depositing the funds within 60 days.

7. Execute Trustee-to-Trustee Transfer (Preferred)

What to do: The new provider will contact your old provider to request the transfer of funds directly.
What “good” looks like: Funds move from one institution to the other without you physically handling the cash.
A common mistake and how to avoid it: Assuming the transfer is automatic without confirmation. Follow up with both providers.

8. Execute Indirect Rollover (If Chosen)

What to do: If you receive a check or direct deposit, deposit it into a dedicated bank account. You then have 60 days to deposit these funds into your new HSA.
What “good” looks like: The funds are deposited into your new HSA within the 60-day window.
A common mistake and how to avoid it: Missing the 60-day deadline. This can result in the funds being treated as a taxable distribution and subject to a 20% federal tax withholding and a 10% penalty if under age 65.

9. Monitor the Transfer

What to do: Keep track of the transfer process. Check with both your old and new HSA providers periodically.
What “good” looks like: You receive confirmation from both providers that the transfer is complete.
A common mistake and how to avoid it: Assuming the transfer is done without confirmation. Lack of monitoring can lead to lost funds or incorrect reporting.

10. Verify Funds in New HSA

What to do: Once the transfer is complete, log in to your new HSA account to verify that the correct amount has been deposited.
What “good” looks like: The balance in your new HSA accurately reflects the transferred amount.
A common mistake and how to avoid it: Not verifying the balance. Errors can occur, and it’s crucial to catch them early.

11. Close Old HSA (Optional but Recommended)

What to do: Once you’ve confirmed the transfer is complete and the old account is empty, you may wish to close your old HSA to avoid any potential future fees.
What “good” looks like: Your old HSA is officially closed.
A common mistake and how to avoid it: Forgetting to close the old account, which might incur small monthly fees.

12. Keep Records

What to do: Save all documentation related to the transfer, including transfer forms, confirmation notices, and statements from both accounts.
What “good” looks like: You have a clear paper trail for your records and for tax purposes.
A common mistake and how to avoid it: Discarding important documents. These records are vital if the IRS has questions about the transfer.

Common Mistakes and What Happens If You Ignore Them

Mistake	What it causes	Fix
Using an indirect rollover and missing the 60-day deadline.	Funds are treated as a taxable distribution, subject to income tax and a 10% penalty (if under age 65).	If you realize you’ve missed the deadline, contact a tax professional immediately to understand your options. In most cases, you’ll owe taxes and penalties.
Not verifying the exact amount transferred.	You might have less money than you expected or, in rare cases, an incorrect deposit that needs correction.	Always reconcile the amount transferred with your old account statement and your new account balance. Contact the new provider if there’s a discrepancy.
Not understanding the difference between a trustee-to-trustee transfer and an indirect rollover.	You might inadvertently trigger a taxable event or use up your annual contribution limit unnecessarily.	Educate yourself on both methods. Trustee-to-trustee is generally the safest and most straightforward.
Providing incorrect account information to the new provider.	The transfer will fail, or funds may be sent to the wrong account, causing significant delays and potential complications.	Double-check and triple-check all account numbers and provider names before submitting any paperwork.
Not informing your old HSA provider of the transfer (in some cases).	While the new provider often initiates, some older systems might require notification. This can cause delays.	Confirm with your new provider if they will notify your old provider or if you need to take any action.
Trying to transfer funds from a Health Savings Account to a Flexible Spending Account (FSA) or vice versa.	These are different types of accounts with different rules; funds are not directly transferable between them.	Understand the distinct purposes and rules of HSAs and FSAs. You can only transfer HSA funds to another HSA.
Assuming the transfer is complete without confirmation.	You might continue paying fees on the old account or be unaware if the transfer failed.	Always obtain written confirmation from both the old and new HSA administrators that the transfer has been fully processed.
Not keeping records of the transfer.	You may have difficulty proving the transaction to the IRS if audited, leading to potential tax issues.	Maintain a dedicated folder for all HSA-related documents, including transfer forms and statements.
Transferring funds while still actively using the old HSA.	This can lead to confusion about which account to use for new medical expenses and potential overlap in transactions.	Complete the transfer before making any new medical payments or contributions, or ensure you understand how to manage dual accounts temporarily.

Decision rules

• If you want to avoid impacting your annual HSA contribution limit, then choose a trustee-to-trustee transfer because this method is not considered a distribution.
• If you are comfortable handling funds directly and can deposit them within 60 days, then an indirect rollover is an option, but be aware of the strict deadline.
• If your primary goal is simplicity and avoiding potential errors, then a trustee-to-trustee transfer is the better choice because the institutions handle the process.
• If you receive a check from your old HSA provider and do not deposit it into your new HSA within 60 days, then the funds will be subject to income tax and potentially a 10% penalty.
• If you have investments in your current HSA, then check with both providers to ensure they can handle the transfer of those specific assets, as not all providers offer the same investment options.
• If you are moving funds due to dissatisfaction with your current provider’s fees, then compare the fee structures of potential new providers carefully before making the switch.
• If you are unsure about the process, then contact both your current and prospective HSA administrators for detailed guidance and to obtain the correct forms.
• If you have a large balance in your HSA, then consider the time it might take for the transfer to complete and plan accordingly to avoid any disruption in accessing your funds.
• If you are nearing the end of the calendar year, then be mindful of the timing of your transfer to ensure it’s fully processed before year-end, especially if you plan to make additional contributions.
• If you are unsure whether your new HSA provider can accept rollovers from your specific type of previous HSA, then confirm this before initiating the transfer to prevent complications.

FAQ

Q1: What is a trustee-to-trustee transfer?

A trustee-to-trustee transfer is when your old HSA administrator sends the funds directly to your new HSA administrator. This method is generally preferred as it does not count as a distribution and does not affect your annual contribution limit.

Q2: What is an indirect rollover?

An indirect rollover occurs when you receive the HSA funds yourself, typically via check or direct deposit. You then have 60 days to deposit these funds into a new HSA. Be aware that the IRS may withhold taxes from the distribution, and you must deposit the full amount to avoid penalties.

Q3: Can I transfer funds from an HSA to an FSA?

No, you cannot directly transfer funds between a Health Savings Account (HSA) and a Flexible Spending Account (FSA). They are distinct accounts with different rules, and HSA funds must stay within an HSA.

Q4: Are there any limits on how often I can transfer my HSA funds?

While there’s no limit on the number of trustee-to-trustee transfers you can make in a year, you can only do one indirect rollover from an HSA to another HSA per 12-month period.

Q5: What happens if I don’t complete an indirect rollover within 60 days?

If you don’t deposit the funds from an indirect rollover into a new HSA within 60 days, the amount received will be considered a taxable distribution. You will owe income tax on it, and if you are under age 65, you will likely also owe a 10% early withdrawal penalty.

Q6: Will transferring my HSA affect my ability to contribute for the year?

A trustee-to-trustee transfer will not affect your annual HSA contribution limit. However, if you perform an indirect rollover and receive the funds yourself, that distribution counts towards your annual limit for the year it’s received.

Q7: What if my old HSA has investments?

If your HSA holds investments, you’ll need to coordinate with both your current and new HSA providers to ensure a smooth transfer of those assets. Some providers may require you to liquidate investments before transferring, while others can facilitate in-kind transfers.

Q8: Can I transfer funds from multiple old HSAs into one new HSA?

Yes, you can typically consolidate funds from multiple HSAs into a single new HSA through trustee-to-trustee transfers. This can be a good way to simplify your account management.

What this page does NOT cover (and where to go next)

• Tax implications of specific distributions: This guide focuses on transfers. Learn about the tax treatment of HSA funds used for qualified medical expenses versus non-qualified expenses.
• Investment strategies within an HSA: While we mention investment options, detailed advice on how to invest your HSA funds for long-term growth is not covered.
• Specific rules for HSAs in conjunction with Medicare or other health plans: The rules for HSAs can change once you enroll in Medicare or other specific health coverage.
• Opening a new HSA from scratch: This guide assumes you already have an HSA and are looking to move it. Information on eligibility and initial setup is a separate topic.
• State-specific HSA tax deductions: While HSAs offer federal tax advantages, some states also provide deductions or credits for HSA contributions.