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Did you know the first few months of every year is the most common time for people to leave their jobs?
That means there’s no better time than now to cover an important topic for anyone with a high-deductible health plan (HDHP) and a health savings account (HSA) who’s recently moved on from a job—or who’s thinking of making an employment change.
So, if you fall into these categories, read on for some helpful tips on what happens with your HSA when you leave your job. And even if you’re not planning on a career changeup at the moment, it’s still a good idea to continue reading. Because if you have an HSA, it’s better to know your options ahead of time just in case you find yourself in a situation where you need to move up or move on for any reason.
From multiple tax advantages and investment opportunities, to flexibility and convenience, HSAs provide many upsides. One of the most important HSA advantages pertaining to leaving a job is an HSA’s portability. Simply put, you own your HSA and all the funds in it.
What that means is your HSA remains with you no matter what, regardless of job changes, health insurance plan changes or even retirement.
But it’s not just account portability alone that gives you an edge. The contributions in your HSA will always remain available to use for qualified medical expenses in the same tax-advantaged way as the day you set your HSA up. And when you retire, you can even use the funds for non-medical expenses with no penalty.
It’s also important to note, if your employer made contributions to your HSA, those contributions are yours to keep as well. Your employer can’t take back any of their contributions—all the money in your HSA is yours to keep and use.
There’s a common misconception that all tax-advantaged accounts have certain windows (annually or otherwise) that their funds need to be used within. When it comes to an HSA, that’s not the case. Because HSAs allow you to roll on with infinite rollover capabilities.
If you have an HSA, and even if you leave your job, you’ll never be faced with a “use it or lose it” scenario when it comes to your HSA contributions. The same can’t be said for many other tax-advantaged accounts like FSAs. But when it comes to HSAs, any funds left in your HSA at the end of the year or at the time you leave your job are able to be rolled over indefinitely with no penalties or charges.
Bottom line—if you leave your job or if your employment status changes, your HSA and all the funds within the account remain with you indefinitely.
While you can rest easy knowing that leaving your job doesn’t mean losing your HSA or your HSA contributions, there are some potential HSA changes you need to be aware of and potentially account for depending on what happens after you leave your job.
First and foremost, you need to understand your HSA eligibility moving forward.
While your account and all the money within it remains yours to use indefinitely for any HSA-qualified medical expenses, you won’t be able to make further contributions if you’re no longer covered by an HSA-eligible health plan. If you need a quick refresher on HSA eligibility, check out Bend’s HSA Basics resource. But just remember, without being covered by an HSA-eligible health plan, you’re no longer able to actively contribute to your HSA.
Also remember, if you had an employer who contributed to your HSA, those contributions will no longer happen once you’ve left your job. That means if you’re not already employed by another employer that sponsors an HSA program and contributes to your account, but are still able to maintain coverage through an HSA-eligible HDHP, you’ll likely need to adjust your contributions to account for the lack of employer contributions. Just remember, you’ll only be able to continue to make contributions to your account if you’re able to maintain HSA-eligible HDHP coverage, through another employer or otherwise.
And if you have already switched over to another employer that offers an employer-sponsored HSA program and makes HSA contributions, you may want to transfer (commonly referred to as a rollover) your existing HSA funds into a new HSA through whichever HSA provider your new employer uses in order to take advantage of pretax payroll contributions and their employer contributions. If you do roll over your HSA funds into a new HSA through your new employer, you can then choose to close out your “old” HSA to consolidate and keep things simple.
In this scenario, you can also choose to leave your existing HSA open and still open a new account with your new employer to take advantage of those employer-sponsored HSA benefits while still keeping your existing HSA intact. There’s no rule against having multiple HSAs—the main point to understand with having multiple HSAs is that you can’t contribute more than the maximum annual HSA contribution limit set by the IRS spread out across all your HSAs. Simply put, the total contribution amounts for all your HSAs combined CANNOT exceed the IRS maximum annual contribution limit specific to your situation.
A quick refresher—here are the maximum annual HSA contribution limits set by the IRS for 2020:
Since the publication of the blog, IRS has issued the contribution limits for 2021:
Whether or not you’re able to maintain active eligibility to contribute to your HSA, once you’ve left your job, you’ll also want to be sure you check with your HSA provider to see if you’ll be charged any fees that may have been previously paid for by your employer. Some HSA providers charge accountholders monthly maintenance or other fees when their employer is no longer there to cover those fees. With Bend HSA, there are no fees for individuals or families.
Changing jobs can be stressful. But worrying about your HSA doesn’t have to be. Now you know that your HSA can stay with you and that there’s no deadline for you to use your HSA funds by even after you’ve left your job.
You also learned that you’re able to have multiple HSAs open without penalty. So be sure to do your homework, since not all HSA providers are created equal.
As long as you’re eligible to have an HSA, you can choose your HSA provider—so choose wisely. If you don’t have a Bend HSA, it’s worth your while to discover the Bend Difference. Bend provides you with the smartest, most advanced HSA on the market, loaded with innovative, user-friendly capabilities that work for you. Feature rich. No gimmicks. No surprises. Just a great HSA platform designed to make unlocking the full potential of your HSA simple and convenient.
Keep 2020 going strong. Enjoy your new career adventure. And make the most of your HSA today and every day moving forward by rolling your existing HSA into a Bend HSA.