How to transfer your HSA without surprise fees

Sources: IRS Pub. 969, Form 8889 instructions, and IRS Notice 2004-50.

The IRS says that if you instruct the trustee of your HSA to transfer funds directly to the trustee of another of your HSAs, the transfer isn’t considered a rollover and there’s no limit on how many of these you can do. You don’t include the amount in income, deduct it as a contribution, or report it as a distribution on Form 8889. (IRS Pub. 969, Form 8889 instructions)

Because the money moves between the two institutions, there’s no 60-day clock to worry about and no once-per-year limit. That’s why it’s usually the safer option.

A rollover is a tax-free distribution from one HSA that you reinvest in another HSA of yours. Two rules apply:

• The 60-day rule. You must roll the amount over within 60 days after you receive it.
• The one-per-year rule. An HSA can receive only one rollover contribution in a 1-year period.

(IRS Pub. 969, Form 8889 instructions. The Form 8889 instructions point to IRS Pub. 590-A for more detail on how rollovers are counted.)

What if you miss the deadline? Then it isn’t a rollover. It’s a regular HSA distribution, and the IRS says a distribution not used for qualified medical expenses is taxable and may carry an additional 20% tax. That extra tax doesn’t apply after you are disabled, reach 65, or die. (IRS Pub. 969) If this happens to you, talk to a tax professional.

The FDIC notes that HSAs may charge “exit” fees, including outbound transfer fees and account closure fees, and suggests asking about delays in the availability of your funds while a transfer is in progress. It also advises that, if you’re moving an HSA to another bank, you first check with your health insurance company to make sure it will permit the switch. (FDIC)

Here are the transfer-out fees we have recorded in our directory. They vary a lot, and several providers don’t publish one:

Where a provider’s fee says “Not confirmed,” call or check the provider’s fee schedule and ask for it in writing. Your employer’s plan can also have a different fee schedule from a provider’s public retail account.

1. Compare before you open anything. Check fees, the minimum to invest, and the cash rate in the directory. The calculator shows how many months a lower fee takes to earn back a transfer-out fee.
2. Open the new HSA. No IRS permission is needed to set one up. The IRS says an HSA can be established through a trustee different from your health plan provider. (IRS Pub. 969)
3. Ask the new provider for its transfer form, sometimes called a direct transfer or trustee-to-trustee transfer form.
4. Ask the old provider: What’s the transfer-out fee? Is there also a closing fee? Can I move part of the balance or only all of it? Will you send investments as they are, or only cash, so I’d need to sell first? How long does it take?
5. Keep new paychecks in mind. If your employer sends payroll contributions to a specific provider, ask HR whether that can change, and whether it’s worth leaving that account open for deposits.
6. Keep the paperwork. Save the transfer confirmation and the tax forms the providers send. You’ll file Form 8889 if you had any HSA activity during the year. (IRS Pub. 969)

A move only helps if the savings outlast the fee. Run the numbers with the calculator, read HSA fees explained for what each fee means, and see cash minimums explained if investing is part of your reason for moving.