Captain Contributor Explains HSA Funding
A Health Savings Account (HSA) is a great complement to a high deductible health plan (HDHP). A person enrolled in a qualified HDHP can open an HSA to cover a large variety of out-of-pocket healthcare expenses. In addition, HSA owners can take advantage of triple tax savings – tax-free funding, tax-free growth, and tax-free distributions for qualified expenses.
HSA Funding - Building Up Your Account
For some people, HSA funding can be confusing. How do you build up your account balance while using it for healthcare expenses at the same time?
First, with a high deductible plan, you can take the money you’re saving in lower monthly premiums and deposit that into your HSA. Some employers also contribute to HSA accounts as part of their benefits package, or offer perks like wellness incentives to earn HSA contributions. Once the money is in your account, it’s yours to keep, even if you leave your job.
HSA owners also have several funding options beyond traditional payday contributions. You can use funds from other types of accounts, like IRAs or another HSA.
HSA Funding - Transfer and Rollover
Moving money from one HSA to another is a relatively simple transaction. However, it’s important to know the restrictions, rules, and regulations. There are two ways to move money between separate accounts: transfer and rollover.
HSA Transfer
A transfer requires that you submit a request to your previous HSA administrator. The money is then sent directly to your new HSA account. Transferring funds deposited in previous years does not count toward your current annual contribution limit, and you can make an unlimited number of transfers in a year.
HSA Rollover
With a rollover, the process is slightly different. Just like a transfer, you are funding one HSA with the money from a different HSA. However, with a rollover, instead of two administrators handling the transfer, you actually receive the funds and have 60 days to deposit the money into your new HSA to avoid paying taxes or penalties. Like a transfer, a rollover contribution does not count towards the annual contribution limit, but can only take place once per year.
Funding an HSA with an IRA
There is one more HSA funding option that many people don’t know about: transferring money from a traditional or Roth IRA. You can transfer money from an IRA into your HSA without penalty or tax, but there is one important catch -- you can only make this type of transfer once in your lifetime. In addition, unlike the other methods of moving money into your HSA, the amount transferred from a retirement account DOES count toward the annual contribution limit.
You Have HSA Funding Options
The bottom line is that you have options when it comes to funding your HSA. When making any type of transfer or rollover, always be sure to talk with your HSA and retirement account administrators to avoid making mistakes that can cost you in the long run.