Health savings accounts (HSA) are their own unique breed of an account by allowing a triple tax savings. Tax free going in, tax deferred growth and tax free going out, as long as it’s a qualified expense. They are unlike a 401K, because you don’t need an employer-sponsored account to hold the money. That’s right, you can transfer or rollover HSA money from an employer account to your own account, even while still employed. And I’ll detail all of the HSA rollover rules you need to know based on how I did it myself.
Disclaimer: The information contained in this article is the opinion of the individual author based on personal observations and years of experience. The author has used its best efforts in preparing this content, and the information provided herein is provided “as is.” The author is not a financial planner or financial advisor as a professional. These are things that have worked for me, but your situation may be different so enlist the help of a credentialed advisor if you want investing advice.
HSA Rollover Rules
An HSA is a tax advantaged medical account that requires a high deductible health plan (HDHP). In exchange for a higher deductible, you usually get lower health insurance premiums and the account itself. It’s best to not compare it to other tax advantaged accounts like a 401k or IRA because the rules are that much different.
As of 2020…
|Minimum deductible to count as HDHP||$1,400 for individual, $2,800 for family|
|Maximum individual contribution amount||$3,550|
|Maximum family contribution amount||$7,100|
|Contribution deadline||April 15th of the following year (i.e. You can contribute for 2020 until April 15th, 2021)|
Here are a few things to keep in mind regarding HSA’s:
- All Contributions carry over year to year
- Contributions are pre-tax
- Any growth or interest is tax deferred
- Withdrawals are tax free when used for qualified expenses as defined by IRS publication 502
- The money is YOURS and stays with you even when switching employers
- Can NOT have health Flexible Spending Account (FSA) and HSA at same time
- CAN have limited FSA (dental/vision) and HSA at same time
For a full list of rules see IRS publication 969
You Control HSA Money
The instant any money is put into your HSA, whether by you or your employer, it’s yours! That means those funds are immediately available for health expenses, transfers, rollovers and the like.
This also means you aren’t tied to your employers provided Health Savings Account. You can shop around for the best account provider on your own if you choose to. And yes, you can have more than one HSA open at a time.
The power of my HSA that I wanted to harness is being able to invest my HSA funds into the stock market. Your employer-provided account may have investment options. However, I was wary of these as they encompass all sorts of high fees and hoops to jump through just to manage my own money. Which is a shame because Health Savings Accounts are THE best retirement savings account. Remember the triple tax savings?
If electing for your own account provider as I did, then there are two ways to transfer that money to your own account.
First is the rollover. This is a once per year option where you request funds to be withdrawn from your current provider. This usually entails you submitting a request and them sending you a check, then leaving you 60 days to move that money into another HSA. If not deposited within 60 days then all tax advantages are lost on that money and it’s considered a non-qualified expense and all taxes will be due, including a 20% penalty fee. Yikes!
Also, don’t forget to report this on form 8889. Don’t want any unwelcome visits from Uncle Sam.
The benefit I found in an HSA rollover was not being charged any “admin fees”, making it the cheapest way to transfer our money.
HSA Trustee to Trustee Transfer
The next options allows for unlimited transfers. The trustee to trustee transfer is initiated by you, to your current HSA provider, to initiate a transfer from them to another Health Savings Account. Unlike the rollover, these usually incur an “admin fee” but in exchange you can do it as many times as you want.
The fees vary so widely from each account provider it’s best to check if this is worth it or not to you. This is truly the “hands-off” approach.
How I Invest with Our HSA
It’s important to note that each HSA account provider has their own rules about investing, so the rules will vary depending on your provider. It will be up to you to contact your provider and ask them if you can invest with your HSA. It will also be up to you if you want to invest or not, as I am only sharing our experience which may be different from yours.
Most providers require that you keep a minimum balance in your HSA before they allow you to invest it. This number can range from $0 to $1500+. It’s best to call instead of go in-person when inquiring about investing in your own HSA. Most banks only have one representative for investments in a wide area and they travel around to different branches. This was true for my KeyBank HSA.
To my dismay, most of the investment options for my HSA were terrible. They were loaded with fees, high expense ratios, front loaded fees, back loaded fees, you name it. Luckily, as I talked about before, we are in control of this money and therefore can use a rollover or trustee to trustee transfer to move the funds into a new HSA account of our choosing.
Using an HSA as a Retirement Account
Why go through all this effort? Because HSA’s are one of the BEST retirement accounts I have available. This is because of the triple tax savings. This is counter-intuitive from only using HSA funds for medical expenses as they occur. The idea is to NOT use HSA funds when we have medical expenses. This is because we want the HSA funds to grow in the invested portion of our account letting compound interest do its work, then withdraw that money later on in life near retirement age.
We made sure to save all of our medical receipts, making digital copies of each one because paper won’t hold up well over 30+ years. We do this because there is no time limit or deadline to reimburse ourselves from our HSA.
HSA rollover rules allow money to be used for nonmedical expenses, tax and penalty-free. Of course you can always use the money later in life for health care costs or even withdraw it after age 65 for non-medical expenses penalty-free (it will be taxable if you do this approach though).
Let’s not forget the actual cost of health care in retirement though. The average couple retiring today at age 65 will need $280,000 for health care and medical costs. Who knows what it’ll be in 10, 20, 30+ years.
The real power of using our HSA as an investment account is the flexibility it will give us in retirement. Higher than expected medical costs? We can use our funds tax free. Lower than expected medical costs? Reimburse ourselves with our saved receipts to pull money out of our health savings account tax and penalty-free.
Best HSA investing account providers
We talked a lot about HSA rollover rules and transferring funds to another HSA account. We look over our options and found the below ranking. Note that I am not affiliated with any of these companies and you should always do your own research/
We look at the HSA Report Card which keeps an updated list of the top 10 investor HSA’s along with reviews for each one.
Currently,* the ranking is:
- Saturna Capital
- HSA Authority
- HSA Bank
- Bank of Cashton
- Health Savings
- Health Equity
- Optum Bank
*As of July 2020
The top things we look for:
- Is there a minimum balance we need to meet in order to invest?
- What are the investment options with the provider?
- Are there fees to open the Health Savings Account? Or any fees to invest with the HSA?
- What are the expense ratios for the stocks available to invest in within the HSA?
As an example, I ended up choosing Lively for my provider. This was based on a zero dollar minimum balance. Meaning I can invest all of the funds available. Lively uses TD Ameritrade for the investments. They had a lot of low cost ETF’s that interested me, specifically the SPTM at 0.03% expense ratio. Lively is free to open and only $2.50 a month to invest.
Each account provider will offer different stock options. I know some even have Vanguard funds, including my choice Index fund, VTSAX. It takes some digging but you can usually find what the options are by visiting their websites. If not from their websites, then their partners. Example being Lively uses TD Ameritrade, so by going to TD Ameritrade’s website I was able to find the investment options.
HSA Rollover Rules Summary
This is ultimately the question you’ll need to ask yourself. Are you able to pay for your medical bills out of pocket or after tax and able to let your HSA grow with investments over many years?
If you have high medical costs and money is tighter, then spending your Health Savings Account now to allow some breathing room in your life might be your best option.
The right choice is the one you make.
HSA Rollover FAQ’s
What is an HSA?
A HSA, short for Health Savings Account, is an account where you can place funds to use on a qualified medical expense at a later date. To qualify for a HSA, you must have a high deductible health plan, or HDHP for short.
How does an HSA work?
A HSA can be opened with your employer, or on your own. Once you present that you have a qualifying HDHP, you can deposit funds into the HSA, or invest the funds in the stock market.
Does HSA rollover?
HSA plans do rollover from employer to employer, whereas an FSA (flexible spending account) does not.
How much can I contribute to HSA?
Each year, the federal government establishes the limits for how much a single person/family can contribute. For 2020, the limits are $3,550 for single people and $7,100 for a family.