After leaving a job, you can keep your HSA active and continue using it for qualified medical expenses. Contributions can be made as long as you are enrolled in a high deductible health plan (HDHP). If not, you can still spend the funds without incurring taxes or penalties, just ensure to report them on IRS Form 8889. Also, consider transferring or rollover the HSA to another provider if desired.
Understanding Your HSA After Leaving a Job
Health Savings Accounts (HSAs) are an exceptional financial tool to save pre-tax dollars for qualified medical expenses while working at a company that offers a high deductible health plan (HDHP). But what should you do with your HSA after leaving your job? This blog post provides direct and actionable advice on managing your HSA post-employment.
Option 1: Keep Your HSA and Continue Using It
Your HSA remains yours even after you leave your job. You can continue to use the account to pay for qualified medical expenses without incurring taxes or penalties. Just remember to report these withdrawals on IRS Form 8889 during tax time.
Continuing Contributions
If you have an HDHP at your new job or as an individual, you can continue making contributions to your existing HSA. If you no longer have an HDHP, you cannot make new contributions. However, you can still use the funds already in your account.
Option 2: Transfer or Rollover Your HSA
If you wish to change HSA providers, you can either transfer the existing balance or rollover the account. A transfer does not count as a distribution and has no tax implications. On the other hand, rollovers involve cashing out and depositing the funds into another HSA within 60 days. Only one rollover is allowed in a 12-month period, and failure to complete the deposit within 60 days could result in taxes and penalties.
Comparing HSA Providers
Before transferring or rolling over your HSA, compare and evaluate different HSA providers. Some factors to consider are fees, investment options, interest rates, and customer service. Choose a provider that aligns with your financial goals and offers a seamless experience for managing your healthcare savings.
Option 3: Using Your HSA for Non-Medical Expenses
If you’d like to use your HSA funds for non-medical expenses, be aware of the consequences. Withdrawals for non-qualified expenses are subject to income taxes and a 20% penalty if you are under 65 years old. After age 65, the penalty is removed but the withdrawal is still taxable. It’s important to weigh the potential tax implications before using your HSA for non-medical purposes.
Understanding HSA-Compatible Health Insurance Plans
When considering future health insurance options, be aware of the requirements for HSA-compatible plans. Typically, these plans must be designated as high deductible health plans (HDHPs) and should not provide any benefits until the minimum deductible is met, barring certain preventive care treatments. As you evaluate your options, keep this information in mind to continue contributing to your HSA.
Investing Your HSA Funds for Long-Term Growth
Many HSA providers offer investment options, allowing you to invest your contributions in a range of mutual funds, stocks, and bonds. This strategy can help your account grow over time and provide an additional source of savings for retirement. When choosing investments, consider your risk tolerance, time horizon, and overall financial goals.
Tracking and Documenting Medical Expenses
To ensure hassle-free withdrawals from your HSA and to comply with tax regulations, it is important to maintain accurate records of your medical expenses. Save all receipts and document the details of each transaction, such as date, amount, and the type of expense. This information will come in handy when filing taxes and completing IRS Form 8889.
Don’t Forget about COBRA Coverage
If you lose your job, you may be eligible for extended health insurance coverage through COBRA (Consolidated Omnibus Budget Reconciliation Act). This federal law allows employees to maintain their health insurance for up to 18 months after leaving a job, as long as they pay the full premium. COBRA may allow you to maintain your current HDHP and continue making HSA contributions on an individual basis.
Frequently Asked Questions
Below you’ll find answers to common questions that may arise when considering what to do with your HSA after leaving your job. We hope these provide clarity and guidance as you navigate your healthcare savings options.
Can I still use my HSA for qualified medical expenses if I’m not enrolled in an HDHP?
Yes, you can use your HSA funds to pay for qualified medical expenses even if you are not currently enrolled in an HDHP. However, you cannot make new contributions to your HSA unless you have an HDHP.
What happens to my HSA if I enroll in Medicare?
Once you enroll in Medicare, you can no longer make new contributions to your HSA. However, you can still use your existing HSA balance to pay for qualified medical expenses, including Medicare premiums, deductibles, and copayments.
Can I use HSA funds to pay for health insurance premiums?
Generally, you cannot use HSA funds to pay for health insurance premiums, but there are some exceptions. You may use HSA funds to pay for COBRA premiums, long-term care insurance premiums, health insurance premiums while receiving unemployment benefits, and Medicare premiums (excluding supplemental policies).
What if I mistakenly use my HSA for non-qualified medical expenses?
If you accidentally use your HSA funds for non-qualified expenses, you must pay income tax on the amount spent and, if you are under 65 years old, a 20% penalty. Notify your HSA provider to ensure accurate reporting and rectify the mistake on your taxes by including the amount in your taxable income.
Can I move my HSA to a new provider after leaving my job?
Yes, you can choose to transfer or rollover your HSA to a new provider after leaving your job. Ensure that you research and compare providers before making the switch to find the best fit for your needs and financial goals.
