When you leave a job, your Health Savings Account (HSA) remains with you as it is your individual account and not tied to your employer. You can continue to use the funds for qualified medical expenses, and even contribute if you have a qualifying high-deductible health plan (HDHP). However, employer contributions will cease, and you may face different fees or need to switch account providers depending on your new circumstances.
Understanding HSAs and Job Changes
Health Savings Accounts (HSAs) are tax-advantaged accounts designed to help you save for medical expenses. They are often coupled with high-deductible health plans (HDHP), and both you and your employer can contribute to them. When you leave a job, it’s natural to wonder what happens to your HSA. In this post, we’ll explore what occurs, how to manage your account, and potential issues to keep an eye on.
Ownership and Portability
HSAs are individually owned accounts, meaning that even if your employer contributed to the account, it’s your property. Consequently, when you leave a job, you retain your HSA. This portability means that the funds in the account remain accessible to you as long as they’re used for qualified medical expenses, even if you’re no longer employed.
Maintaining HSA Contributions
After leaving your job, you can continue to contribute to your HSA as long as you still have a qualifying HDHP. However, be aware that your annual contribution limit may change, especially if you change coverage types (i.e., from individual to family coverage, or vice versa).
Employer Contributions and Fees
While the HSA remains with you, it’s essential to recognize that employer contributions will cease once you leave your job. Any contributions you received from your employer while employed count towards your annual limit for that year. You can still contribute the difference up to the limit.
Additionally, when you leave your job, you might experience a change in the HSA fees associated with your account. Employers often cover account management fees for active employees, so you may now be responsible for those charges. Review your account details and fees, and consider transferring your HSA to another provider with lower fees if necessary.
Post-Employment Medical Expenses
Your HSA can still be used for qualified medical expenses, regardless of your employment status. You can use the funds for yourself, your spouse, or your dependents, as long as the expenditures are considered qualified under IRS guidelines.
Non-Qualifying Health Coverage
If you leave your job and enroll in a non-qualifying health plan, you should know that you cannot make new contributions to your HSA. However, your existing HSA balance remains available for you to use for qualified medical expenses.
Overseeing Your HSA After Leaving a Job
Understanding the impact of leaving your job on your HSA is crucial for your financial health. Keep these points in mind: maintain ownership, consider your contribution possibilities, monitor fees, and be aware of your new health coverage options. By managing your HSA effectively, you can continue to maximize its benefits even after a job change.
HSA Rollovers and Transfers
If you decide to change your HSA provider after leaving your job, you can do so by performing a rollover or a transfer. In a rollover, you withdraw funds from your current HSA and deposit them into a new account within 60 days. Keep in mind that you can make only one tax-free HSA rollover per 12-month period. A transfer, on the other hand, moves HSA funds directly from one custodian to another without the account holder taking possession of the funds. Transfers are not limited and can be done as many times as you want.
Impact on Taxes
HSAs have tax advantages, with contributions being tax-deductible, the growth of invested funds being tax-free, and distributions for qualified medical expenses being free of federal income tax. These benefits remain intact when you leave your job. However, if you withdraw your HSA funds for non-medical expenses before you turn 65, you’ll be subject to income tax along with a 20% penalty. Withdrawals for non-medical expenses after you turn 65 are subject only to income tax.
Using HSA for COBRA or Premiums
After leaving your job, you may qualify for COBRA continuation coverage, which allows you to continue using the same health plan for up to 18 months. You can use the funds in your HSA to pay your COBRA premiums. Additionally, if you’re eligible for unemployment benefits, you can use HSA funds to pay for health insurance premiums without incurring penalties.
HSA and Medicare
If you leave your job and enroll in Medicare, you can no longer contribute to your HSA, since Medicare does not qualify as a high-deductible health plan. However, you can continue to use the funds in your HSA to cover qualified medical expenses, as well as premiums for Medicare Parts B and D or for your Medicare Advantage premium.
Staying Organized and Prepared
To make the most of your HSA after leaving a job, keep records of all qualified medical expenses and transactions. Organizing your receipts, explanations of benefits, and account statements will ease tax reporting and ensure you use your HSA funds properly. In addition, ensure you change your account information, such as mailing address and email, if needed, to maintain clear communication with your HSA provider.
FAQ Section
Explore our frequently asked questions to further understand the nuances of Health Savings Accounts (HSAs), especially when you experience a job change or separation. Find the answers to five common queries below.
Can I transfer my HSA balance to my spouse’s HSA after leaving my job?
No, you cannot transfer your HSA balance directly to your spouse’s HSA. However, you can use the funds in your HSA to cover qualified medical expenses for both you and your spouse, as long as you file taxes jointly.
Can I contribute to an HSA if I enroll in a plan that is not an HDHP?
No, you must have a qualifying high-deductible health plan (HDHP) to be eligible to contribute to an HSA. If you’re enrolled in a health plan that isn’t an HDHP, you cannot make contributions, but you can still use the funds from your existing HSA for qualified medical expenses.
What happens to my HSA if I switch to a job that doesn’t offer an HSA?
If you switch to a job that doesn’t offer an HSA, your existing HSA account stays with you since it belongs to you and not your employer. You can continue to use the HSA funds for qualified expenses, but you can only continue contributing if your new health insurance qualifies as an HDHP.
What should I do if my new employer offers a different HSA provider?
If your new employer offers a different HSA provider, you have a few options. You can maintain your existing HSA account while contributing to the new one offered by your employer, transfer the funds from your existing HSA to the new HSA, or rollover the funds from your existing account to the new HSA. Compare the fees and services offered by both providers before making a decision.
How do I determine whether my medical expense qualifies for HSA usage?
To determine if an expense qualifies for HSA usage, refer to IRS Publication 502, which provides a comprehensive list of qualified medical expenses. Generally, a qualifying medical expense includes treatments, therapies, supplies, and diagnostic tests necessary to maintain your health or the health of your spouse or dependents.
