Do You Lose Your HSA When You Quit Your Job?

If your employer provides health coverage that qualifies for a health savings account (HSA), you may be curious about what happens to your HSA if you quit your job. When you leave your job, you retain ownership of the funds in your HSA, even if you do not elect COBRA coverage of your health insurance.

HSA Contributions

• Contributions can be made to your HSA by your employer on your behalf. You can also make tax-deductible contributions through payroll deductions. Once funds are deposited into your account, they are yours to keep. Funds in your HSA can be withdrawn tax-free for qualified medical expenses. After you quit your job, you can also use your HSA to pay for COBRA insurance premiums. Contributions to your HSA made by your employer are not tax-deductible to you, but they are not calculated as part of your gross income.

Contribution Limits

• The IRS limits the contributions that can be deposited into your HSA each year. In 2011, these limits are $3,050 for an individual policy and $6,150 for a family HSA. This is the contribution amount if you participate in an HSA-qualified plan for the full year. If you stop participating in an HSA-qualified plan during the year, the IRS will prorate the limit. The IRS will also adjust your contribution limit if you switch from an individual to a family HSA plan at some point during the year.

Excess and Erroneous Contributions

• Contributions to your HSA made by your employer above the prorated limit (if you leave during the year) can be added to your taxable W-2 income. If your employer makes a mistake and continues to make deposits into your HSA after you quit, they are not permitted to withdraw those funds from your account. As long as the contributions do not become excess contributions, the employer can only deduct the contributions made in error on their corporate return.

Time Limit

• Unlike a flexible spending account, funds in your HSA do not have to be used within the year. The balance in your HSA can roll over from year to year, although you can only make contributions when you are enrolled in an HSA-qualified plan.