Tag Archives: Rollover

How to Avoid Health Savings Account Bank Fees

This question was submitted by HSA Edge reader Lillian. Feel free to send in your question today to evan@hsaedge.com.

I used to have an HSA account through my job but they are not offering that plan anymore, so now I have to pay a fee to keep that account open. Can I transfer that money to another account or another HSA bank where they would not charge me a fee even though my employer doesn’t offer that type of account?

Too many HSA fees

While Health Savings Accounts are a forward thinking way to save money and reduce medical expenses, the banks that provide the actual accounts have not fully caught up with the times. Their offerings suffer from poor web design, lack of tools and features, and restrictive / excessive fees. Even though HSA usage continues to increase at a rapid rate, traditional banks have not yet caught up, and avoiding fees for the HSA owner is an important part of protecting your investment. This article will review some commonly levied fees by one HSA custodian, and discuss 5 ways that you can reduce or eliminate HSA fees in your account.

Research fees structure before opening account

It is surprising how many fees there are related to HSA’s. Not just those specifically relating to your Health Savings Account, but other banking fees thrown in as well. For example, take a look at this screenshot from HSA Bank’s website describing some of their fees:

HSA bank fees

Granted, not all of these fees occur each month, and some of these are legitimate as they support costs for services. I do like how they list strategies on how to avoid the fee. However, as an HSA owner you need to look for recurring or transaction fees that affect your HSA. For example, here are some of the HSA related fees charged by that bank that directly affect HSA owners, some on every transaction!

ATM Withdrawal
Purchase using debit card
Manual withdrawal
Excess Contribution
Invest your HSA (monthly fee)
Account closing

While this bank is free to offer services they see fit, I hate being charged to access my money, so I see some of these fees as egregious and would shop around.

How to avoid HSA fees

Too many fees can add up and reduce your HSA balance over time. Plus, they are just annoying, since it is your money, and you are being nickel and dimed at every turn. As such here are some strategies to avoid or reduce Health Savings Account fees and charges.

Choose low fee plans – this involves doing a bit of research before you open your HSA. While the timing of opening your HSA is important, it is also important to get the best deal possible. Search around online and talk to your bank / credit union to see what types of plans they offer. Somewhere hidden on their website is the fee schedule that you need to review. Apply those fees to your situation and compare the plans of different providers. This will insure that you are at least aware of the fees charged and can choose what is best for you.
Switch HSA custodians – if you already have a Health Savings Account, you can still compare plans and switch to a new custodian if you find a better deal. This is easily done using an HSA Rollover to move funds between HSA accounts. Yes, you can have more than one HSA open at a time at different providers, and there is no tax or penalty to move HSA dollars between them. The point is you don’t have to stick with the HSA custodian your job set you up with, or the custodian where you first opened your account. Instead, do your fee research, find the best deal for you, and make a move if it makes sense.
Maintain the minimum balance – one of the best parts about HSA’s is you can invest your funds tax free. However, many banks have a minimum amount needed to invest, and others levy fees if you are investing but your investment amount is under a certain minimum. Thus, if you can beef up your HSA and meet those minimums investment amounts, the monthly fees will go away forever. This might involve making an extra contribution or two to your HSA, or waiting to invest it until you have the minimum available. I recommend keeping part of your HSA in cash (not invested) at all times in case you need it for health care. Once you have that amount set aside, you can begin investing the rest.
Choose cheapest options –if you look at the fee schedule above, you can see that they offer recommendations of how to avoid their HSA fees. Use this to your advantage by making choices that reduce fees charged. For example, there are a number of ways to pay for an HSA purchase. At the above bank, the associated fees are:
- ATM Withdrawal – $2
- Debit card purchase – $2
- Manual withdrawal – $10
- Online transfer – $0
Thus, it would make the most sense to purchase HSA elgible expenses on your credit card, and do an online transfer from HSA to bank to reimburse the purchase, making it tax deductible. Playing by the bank’s rules can add up and save you a lot of money over time.
Play by the rules –regardless of your bank fees, you want to be familiar with the rules of HSA’s. This will help you avoid taxes and penalties with the IRS as well as your HSA custodian. For example, excess contributions can usually be removed from your HSA before tax day without penalty. However, the HSA custodian above will charge you $25 for the pleasure. In addition, they charge $25 for a transaction correction, which consists of a change to the transaction type, amount, or tax year. By knowing what you can contribute and getting it done correctly the first time, you can avoid this $25 fee.

Note: if you need help reducing HSA bank fees, consider my service TrackHSA.com for your Health Savings Account record keeping. You can store purchases, upload receipts, and record reimbursements securely online. Besides tracking everything important, this will help you batch transactions for reimbursement and prevent mistakes that cost you money.

How Much Did I Contribute to My HSA?

This question was submitted by a user of EasyForm8889.com. Feel free to send in your question today to evan@hsaedge.com.

I don’t know where to find the amount I contributed to my HSA. The IRS says I had $774 in my HSA account. My W2 says my employer contributed $850. Does this make sense?

The bad way to determine your HSA contribution

First off, using your bank account, HSA transaction history, or W2 isn’t the way to determine your HSA contributions for a given year. Why is this? While these numbers may often equal the amount you contributed to your HSA, they may not equal what was reported to the IRS as contributed to the HSA. Mistakes happen, and sometimes your HSA administrator will miss a contribution or mess up the dollar amount. If this happens, they will report a different amount than you report on your taxes. This discrepancy can be a red flag to the IRS, which is why it is critical to have a “source of truth” for your HSA contributions. This serves as the official amount contributed to your HSA for the year, and if it is not correct, you can have your custodian fix it fairly easily.

Form 5498-SA reports contributions for the year

Each year, your HSA custodian (bank where you have account) is required to send you IRS Form 5498-SA. This form provides an accounting of all contributions to your HSA for the tax year, including personal, employer, prior year, and rollover contributions. Form 5498-SA is the “source of truth” we describe above, and is the final say in what was contributed. It is basically the “writing in stone” between you, your HSA custodian, and the IRS. Thus, if it is not correct, contact your custodian and make it so.

Here is an example of what Form 5498-SA looks like:

HSA_Form_5498-SA_2016 completed

For more detailed information on Form 5498-SA, please see this article.

Where is my Form 5498-SA?

Your HSA custodian is required to send you this form each year before you file your taxes. Generally, you should get the form by January 31st. However, mail gets lost or sent to wrong addresses. If you do not have your Form 5498-SA, don’t worry, you should be able to find this form on your custodian’s website in the document archive. Worst case, give them a call and ask to resend it or email it to you.

Why HSA Contribution amounts are important

Getting your HSA contribution amount is critical when you go to file Form 8889 each year, as an incorrect value can cost you money. If you under report your contribution to your HSA, you will not receive the tax deducation that Form 8889 allows you (by means of Form 1040). You basically did all the hard work for the HSA and didn’t get any benefit. On the other hand, if you over report your contribution, you risk taking too much of a deduction. This results in filing your taxes wrong and spending time dealing with fixing them or wost case, a friendly chat with the IRS.

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Note: if you need help calculating your contribution on your HSA taxes this year, please consider using my service EasyForm8889.com to complete Form 8889. It is fast and painless, no matter how complicated your HSA situation.

How to Rollover HSA Funds

At some point you may find yourself with multiple Health Savings Accounts that you wish to combine or transfer money between. While the actual transaction is easy to accomplish, there are potential tax implications per the IRS, as this transaction ends up on Form 8889, so it is best to play by the rules and do it correctly. This article will outline those rules to rollover your HSA.

HSA Rollover Definition

The IRS defines an HSA rollover as:

A rollover is a tax free distribution (withdrawal) of assets from one HSA or Archer MSA that is reinvested in another HSA of the same account beneficiary.

Note they define a rollover as a distribution that occurs in an effort to move money between Health Savings Accounts that belong to the same owner. However, the key word is distribution which we will get to shortly. They go on to say:

Generally, you must complete the rollover within 60 days after you received the distribution.

This language confirms that you are actually receiving the money, probably in the form of a check, from the originating HSA trustee. You then have 60 days per the IRS to deposit that money in a corresponding HSA to avoid penalty. One last rule from the tax man:

An HSA can only receive one rollover contribution during a 1 year period.

The IRS puts a limit on the number of HSA rollovers that can occur during a year, which is not necessarily a calendar year. But they note that this restriction is on the receiving HSA account, not the originating account.

Direct Transfer from HSA to HSA

It is important to note that rollovers that occur directly between HSA trustees are not considered rollovers. For example, if you instruct HSA Account 1 to transfer $500 to HSA Account 2, and they transfer directly without you ever seeing it, this is not a rollover. Instead, the IRS deems this a transfer:

If you instruct the trustee of your HSA to transfer funds directly to the trustee of another of your 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.

Thus, the same rules do not apply to transfers and HSA rollovers. Transfers are much more flexible and frequent. Likely, the IRS imposes tight rules on Rollovers since they “lose sight” of the money for a while, which opens the door for non qualified HSA spending. The key test is in the distribution, determined by whether you physically receive the HSA funds (check) to redeposit in another HSA.

HSA Rollover vs Transfer Comparison

This table clarifies the difference between HSA rollovers and transfers:

	Rollover	Transfer
Funds transferred	to you, then to receiving HSA	directly to receiving HSA
Time to complete	60 days	None (instant)
Form 8889 impact	Include in 14a and 14b	Not included
Frequency Limits	Once every 12 months	No limit
Affects HSA Contribution Limit	No	No
Included in income	No	No
Deductible	No	No
Difficulty	medium	easy

HSA rollover rules

To summarize the rules for rolling over your HSA:

Initiate the distribution from your originating HSA trustee, and they will send you a check
Upon receiving the HSA funds, redeposit them with the receiving HSA trustee within 60 days
You may only make one rollover during each 1 year period, beginning on the date you make the deposit.
Record this as an HSA rollover on Form 8889, lines 14a and 14b.

Should I transfer or rollover my HSA?

In general, I would opt for a direct transfer of your HSA. This is done by instructing your HSA trustee to move money to another HSA trustee. The reason is it is much simpler for you to execute and takes less time. You don’t have to wait for the check, spend time depositing it in your other HSA, and then remember and figure out how to report it at tax time on HSA Form 8889. Plus, you can do as many of these transactions as you wish during the year.

How to report HSA rollover to the IRS

One disadvantage of a true HSA rollover is that you will need to report it on IRS tax Form 8889. When properly accounted, a rollover will not adversely affect you in terms of taxes, penalty, or contribution limit; it is a totally legitimate transaction. Instead, it is more of a nuisance as you have to remember to report it to satisfy the IRS and correctly file Form 8889.

On Form 8889, you will need to include the amount of your HSA rollver distribution on both:

Line 14a – Total distributions you received from all HSA’s
Line 14b – Distribution included on line 14a that you rolled over to another HSA.

Here is an example of what Form 8889 looks like for 2015 with only a $1000 HSA Rollover:

form8889_hsa_rollover_line_14

The above was prepared by EasyForm8889.com, which asks simple questions like this to complete HSA Form 8889:

Transfer your HSA to a New Employer

Depending on how your employer’s HSA is setup, there may not be any work to transfer your HSA to a new employer. In one situation, you go to a new employer who offers HSA eligible insurance, but does not contribute or offer cafeteria plan (removed from your paycheck) contributions. In that case, you manage the HSA yourself, and can maintain the account at whatever financial institution you wish.

However, if your employer is making contributions or your contributions will be made through a cafeteria plan, you may need to transfer funds to your new HSA. You have the option of receiving and redepositing (Rollover) the HSA funds, or just initiating a trustee to trustee transfer for the HSA funds. Either one will work, but note the advantages above of the simpler transfer method. Generally, this will be a good idea to minimize your account fees and manage your HSA in one spot.

HSA rollover IRA to HSA

If you wish to rollover IRA (or even 401(k)) funds to your HSA, this is not considered a rollover, but instead a Qualified HSA Funding Distribution. Please see the aforementioned article for more information, as there are more restrictions and rules regarding this type of transfer.

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Note: if you have an HSA, please consider using my service EasyForm8889.com to complete Form 8889. It is fast and painless, no matter how complicated your HSA situation.