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The HSA Report Card Blog

Unhappy With Your Employer’s HSA? Here’s How to Move It

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If you have an employer-sponsored health savings account (HSA) that isn’t meeting your needs. Move it. In this post we’ll cover all the intricacies of moving funds from an employer-sponsored HSA to a personal HSA. We’ll also touch on the benefits of making HSA contributions via payroll (through your employer).

Lets start with the benefits of contributing to an HSA via payroll. One benefit of contributing via payroll is the Social Security and Medicare (FICA) tax savings. Another benefit of contributing to an HSA via payroll is convenience. It’s nice to have funds placed in an HSA without any effort on your part. Also, your employer may be matching your contributions dollar for dollar, up to a certain dollar amount. This is free money. Can’t pass that up.

That said, once funds are deposited into your employer-sponsored HSA via payroll, they can be moved to another administrator of your liking. In addition to your employer-sponsored HSA, you can open up a personal HSA. You can have multiple HSAs at the same time. You have complete control over where your HSA funds are located.

Reasons for moving funds from an employer HSA to a personal HSA include outrageous fees, poor investment options, no investment options, high investment thresholds, outdated technology, and account consolidation, etc.

Three Options to Fund a Personal HSA

  1. Transfer funds from employer-sponsored HSA to personal HSA

With this strategy, you deposit funds into your employer-sponsored HSA via payroll. After the deposit is made, you initiate the transfer of funds from your employer-sponsored HSA to your personal HSA. A few things to consider before initiating a transfer.

  • Transfers may incur fees. Before going this route, find out what fees are associated with the transfer process. Typically, administrators only charge for funds being transferred out. Transfer fees typically range from $0 - $25. Tip: Ask the receiving HSA administrator to pay for the transfer fee.

  • You can make an unlimited number of transfers.

  • You don’t have to report transfers on your tax return. Unlike a rollover, you don’t receive any 1099 forms for transfers.

  • It takes anywhere from 3-6 weeks for a transfers to go through.

If your employer-sponsored HSA allows free fund transfers, this is the best way to fund your personal HSA.

2. Rollover funds from employer-sponsored HSA to personal HSA

With a rollover you are moving the funds from one HSA to another, but the funds are sent to the account holder rather than directly from one trustee to another. You have 60 days to get the funds back into an HSA without incurring taxes or penalties. In order to initiate the rollover process, first log into your personal HSA, then find the rollover form. When you send the rollover form to your personal HSA, be sure to indicate the money is a rollover, not a normal contribution. That way it doesn’t use up the annual limit for your normal contributions.

You can request a distribution from your employer-sponsored HSA as you normally would when you reimburse yourself for eligible medical expenses. The distribution is deposited into a personal checking account. Then you send a check within 60 days to the new HSA provider as a rollover contribution. If you have checks from your employer-sponsored HSA, you can write a check for the amount you want to rollover and send it with your rollover form to your personal HSA. If you don't have checks from your employer-sponsored HSA account, you can write a personal check. There are a few restrictions with HSA rollovers.

  • The IRS limits one rollover per 12 months. You can only do it once per rolling one-year period (not calendar year).

  • You have to file Form 8889 during taxes to report that you performed an HSA rollover.

  • From the day you initiate a rollover, the funds must be deposited into the account within 60 days.

In spite of the restrictions, If your employer’s HSA charges for transfers or is stupendously cumbersome, you may be limited to doing an annual rollover.

3. Make contributions directly to your personal HSA

As mentioned earlier, one of the benefits of contributing to an HSA via payroll is the FICA tax savings. Unfortunately, non-payroll (direct) contributions are subject to FICA taxes.

For many taxpayers, the difference is more than $7 savings for each $100 contributed to an HSA through payroll compared to the same amount contributed on your own.  For a family that contributes the 2018 maximum of $6,900, that translates into more than $500 in savings by making contributions through your employer’s payroll.

That said, direct contributions to a personal HSA might make sense for a select few high earners. As an employee, you are responsible for paying a 6.2% Social Security tax on the first $128,400 ($256,000 if married and filing jointly) of income up to a maximum tax payment of $7,886.40 per year. Any income earned above this level will be exempt from Social Security taxes. With Medicare, the tax is 1.45% on the first $200,000 of income and then 2.35% on amounts above $200,000. 

Thus, if you earn more than the Social Security wage base ($128,400 in 2018), the FICA savings is 1.45% (Medicare portion of FICA tax) of your HSA contribution. If you earn less than $128,400, the FICA savings is 7.65% of your HSA contribution.

If your FICA savings is less than the transfer fee, direct contributions might actually make sense. Also, don’t forget to factor in your employer’s match.

Can you set up payroll deductions for a non-employer HSA?

It’s definitely possible if you, your employer, and a nimble custodian are willing to make this happen. You’d first need to open up an HSA with an administrator of your liking. Once you’ve set up an account, supply your account & routing number to your employer, and they’ll set a payroll HSA deduction so you can make contributions on a pre-tax basis. The downside to this set-up is that the employer probably won’t pay the maintenance fees, but this wouldn’t be an issue if you opted for a fee-free administrator.

Noe Padilla