Summary
There are numerous decisions employees and employers must make when it comes to health care plans. One area to consider is how to handle how health savings accounts (HSAs) work from one year to the next. This article also explains what your employees need to know about HSA rollovers, including these key takeaways:
- HSAs are employee-owned and once contributed, funds are available to use, even when employees change jobs.
- HSA rollovers and transfers have strict IRS limits. Indirect rollovers are capped at once per 12-month period, while trustee-to-trustee transfers have no limit and aren't reported as a rollover.
- Contribution limits reset each January.
HSA: The Basics
HSAs are available to employees who enroll in qualifying high-deductible health plans (HDHPs). The IRS defines HDHPs and understanding how HDHP and HSA rules interact is a core piece of employee benefits education, since HDHP enrollment is what makes an employee HSA-eligible in the first place.
HSAs allow employees to contribute pre-tax money from their paychecks into an HSA, which can then be used to pay for eligible medical expenses. HSAs are considered “triple tax-advantaged,” since they are funded with pre-tax income, grow tax-free, and employees can withdraw from them tax-free so long as the funds are used to pay for eligible expenses. These funds may help with managing the cost of out-of-pocket eligible expenses that are not paid by their medical insurance.
HSA Investment and Long-Term Growth Opportunities
HSAs often have an option to let employees invest balances once they reach a designated threshold. Here’s a look at the potential growth opportunity of investing an annual HSA contribution of $4,400* compared to saving the contribution without investing.
*For illustrative purposes only. Assumptions: 30-year investment timeframe; annual contributions of $4,400; 6% annual return on investment; Interest compounded annually; 0% return on cash; no withdrawals. This hypothetical example does not represent the performance of any particular investment and is not a guarantee of future results. The illustration does not consider investment fees or expenses that would lower performance. Actual rates of return will fluctuate. All investing involves risks of fluctuating prices and the uncertainties of return and yield inherent in investing. All security transactions involve substantial risk of loss. Based on the Voya Savings Calculator at www.voya.com/tool/403b-457b-401k-savings-calculator.
HSAs Can Be Used in Retirement
Unlike an FSA (Flexible Spending Account), HSA funds are never forfeited and are available to use if they are in the account. Additionally, invested balances will have the potential to grow. It’s important to keep in mind that investing involves risks of fluctuating prices and the uncertainties of return and yield inherent in investing. All security transactions involve substantial risk of loss. After age 65, employees can no longer contribute funds (if they are enrolled in Medicare) but can withdraw funds for any purpose penalty-free, though non-medical withdrawals are taxed as income, similar to 401(k) withdrawals. This makes the HSA a versatile tax-advantaged healthcare savings tool, and worth factoring into retirement planning and any HSA rollover or transfer decision.
Transfer HSA Funds Into a New HSA
An HSA rollover means the transfer of a balance from one HSA to another. This is often done when an employee leaves one employer for another and wishes to transfer their existing HSA balance into the new HSA they have access to that is offered by their new employer.
To maintain the tax-savings benefits of the HSA and avoid a 20% penalty, you need to consider these two requirements as outlined by the IRS in its Instructions for Form 8889 (2025):
- Only one rollover is allowed per one-year period. It should be noted that this year starts the day you initiate the rollover by withdrawing funds from the original HSA. If you initiate the rollover on January 3rd, you won’t be able to rollover again until the same date next year.
- Once you initiate the rollover, you have 60 days to deposit the funds into your new HSA before risking taxation on the funds. Make sure you understand how you’ll receive the funds from the old account (check transfer or bank account) and how best to deposit the funds into the new account. It’s important to keep in mind that the accountholder will be in possession of the money and will have 60 days to deposit into the other HSA in order to avoid taxation.
Tip: Employees can get around the limit of only one HSA account transfer a year by establishing a trustee-to-trustee transfer.
Per IRS Publication 969: If employees instruct the trustee of their HSA to transfer funds directly to the trustee of one of their other HSAs, the transfer is not considered a rollover. There is no limit on the number of these transfers. Do not include the amount transferred in income, deduct it as a contribution, or include it as a distribution on Form 8889.
HSA Rollover vs. HSA Transfer
These terms are often used interchangeably, but the HSA rollover rules the IRS applies distinguish between them:
- Indirect rollover: Employee withdraws funds and redeposits into a new HSA within 60 days. Limited to once per 12-month period under IRS rollover rules.
- Trustee-to-trustee transfer: Funds move directly between HSA custodians; the employee never touches the money. No limit on frequency, and it isn't reported as a rollover.
For employees making an HSA transfer more than once a year, a trustee-to-trustee transfer is likely the easier, penalty-free option.
What Happens to an HSA When Changing Jobs
An HSA is a bank account that belongs to the employee, not the employer, so it stays with the employee through a job change—no rollover or HSA transfer is required to continue using the funds in the account. They may be subject to administrative or other fees when it’s no longer administered through the previous employer. Only employees who wish to consolidate into the new employer’s HSA provider need to initiate a Health Savings Account rollover or trustee-to-trustee transfer. This is a key opportunity for employee education.
Common HSA Rollover Mistakes
- Missing the 60-day deposit window on an indirect rollover and incurring taxes.
- Attempting a second indirect rollover within the same 12-month period, violating HSA rollover rules.
- Assuming unused funds expire like an FSA (they don't—HSAs are tax-advantaged healthcare savings with no forfeiture).
- Annual contribution limits are global across all active accounts an individual may have.
- Withdrawing funds before the new HSA account is open and ready to receive them.
- Forgetting that employer contributions still count toward HSA contribution limits.
HSA Transfer Fees and Considerations
Providers may charge a small fee to close or complete an HSA transfer and some charge ongoing maintenance fees. If funds are invested, they may need to be liquidated before a trustee-to-trustee transfer. This doesn't typically trigger taxes on a standard cash-to-cash transfer, but employees should confirm the process with their provider first.
What Do I Tell Employees About an HSA Rollover?
If employees are happy with their current HSA, they don’t need to do anything at all. Their money is protected from taxes, and their invested funds have the potential to grow. Most importantly, the onset of a new year means that their contribution limits have been reset. Sharing the IRS-dictated contribution limits each year is one of the simplest, highest-value pieces of employee benefits education you can offer. If an employee is looking to rollover their HSA into a new, separate account, it’s advisable to inform them of the IRS’ stipulations, as well as to warn them about any potential fees they may encounter when withdrawing their balance. The following chart is a helpful resource to guide employees as they make a decision on whether or not to transfer their old HSA to their new HSA.
Things to Consider Before Transferring Funds From an Existing HSA
Keep Existing HSA
Select this if:
- You have a balance you consider to be large with low or no maintenance fees that gain interest.
- Investment options are showing positive returns.
- Most health spending will occur out of your new HSA.
Things to Consider:
- Low-to-no monthly maintenance fees.
- Interest rates or investment options compared to the new HSA if you moved the entire balance.
- Online access to the account allows visibility into balance and investment returns.
Spend Down & Close Existing HSA
Select this if:
- You have a balance you consider to be low that can be spent within one or two months.
- Low monthly maintenance fee.
- The rollover/transfer or account closure fee is higher than spending down the account.
Things to Consider:
- Low-to-high monthly maintenance fees.
- High transfer fees to a new financial institution.
- High closure fee when balance remains.
Transfer Funds & Close Existing HSA
Select this if:
- You have a medium-to-large balance and want a simpler way to manage your accounts.
- You won't need immediate access to the funds while they are being transferred (you can reimburse yourself for any expenses that do occur).
- Your new employer pays all administrative fees for their HSA.
Things to Consider:
- Low transfer or close fees compared to monthly maintenance fees that could impact your balance.
- If your new HSA has a reimbursement method to help pay you back for eligible expenses that occur during the transfer.
HSA Rollover FAQs
Q: Are HSA funds “use it or lose it” at year-end?
A: No. Unlike FSAs, Health Savings Account balances roll over automatically with no expiration.
Q: Can employees roll over an HSA into an IRA?
A: No. In general, you cannot rollover or transfer HSA funds into an IRA.
Q: What happens if employees miss the 60-day window on an indirect rollover?
Under HSA rollover rules, the funds become taxable income and may incur a 20% penalty if you're under 65.
Q: What's the difference between a rollover and a trustee-to-trustee transfer?
A: A rollover involves the employee briefly holding the funds; a trustee-to-trustee transfer moves funds directly between custodians and has no annual limit.
Q: Can employees have more than one HSA at a time?
A: Yes. There is no limit on the number of accounts, only on total HSA contribution limits. Annual contribution limits are global across all active accounts an individual may have.
Need Help with HDHP and HSA Communications?
If you’re introducing a new HDHP or need help educating your employees about HSAs, we can help. Benefitfocus offers benefits decision support software and education to help your employees make better decisions. Request a demo to learn more.
