Can You Rollover an HSA Into Another HSA?

Having multiple health savings accounts can make it difficult to keep accurate records. You could easily end up with more than one if you move or are the beneficiary of a spouse's HSA. Internal Revenue Service rules allow you to consolidate health savings accounts, but it has parameters about when you can do this. Transferring HSA funds can result in unexpected penalties and taxes.

Time Period

• According to the Internal Revenue Service's Publication 969, you may roll over funds from one HSA to another once every 12 months. The trustee of the HSA you want to roll over will have procedures you will need to follow to initiate the transfer. You can transfer funds in several ways. Rollover funds do not count toward the annual contribution limit for your HSA.

Transfer Methods

• A trustee-to-trustee transfer will move the funds from one institution to another and is least likely to trigger penalties or taxes. A trustee-to-trustee transfer is exempt from the 12-month rule. Technically, a "rollover" involves the trustee of your current HSA sending you a check. You have 60 days from the date of the check to redeposit the funds into another HSA. The third way you can transfer the funds is to write a check from your old HSA to fund your new one.

Cautions

• Although trustee-to-trustee transfers do not count toward the once-a-year rollover rule, the current trustee has 60 days to move the funds to the new trustee. During that time, you might find the assets in the account frozen and inaccessible. If you do not meet the 60-day deadline, the IRS considers the funds taxable income, and it will assess a 10 percent penalty plus income taxes. If you write a check to move the money from one account to another, remember to close the first account or you may incur unnecessary fees.

Reminder

• Keeping accurate records of your HSA transactions is important. If you do not move the funds from one HSA to another via trustee-to-trustee transfer, the record may erroneously show a contribution instead of a rollover. Confirm correct recording of the rollover to avoid problems like excess contributions, which can also result in penalties and additional tax liability.