Summary
If you’ve started a new job and are enrolled in a high-deductible health plan with an HSA, it often makes sense to roll over your old HSA funds into your new account. Consolidating your HSAs simplifies your finances—fewer accounts, less paperwork—and rollovers do not count toward your annual HSA contribution limit.
Don’t Overlook Your HSA Options
If you’ve recently left a job, you might still have an HSA sitting with your former employer. Most people focus on their 401(k) when switching jobs and often forget about their old HSA. But that “orphaned” account can still play a strategic role in your financial future—particularly as a long-term investment vehicle for healthcare expenses in retirement.
Option 1: Reframe Your HSA as a Stealth Retirement Account
Repositioning your HSA as a specialized retirement account—rather than just a healthcare spending account—can significantly boost your retirement readiness. According to JP Morgan Asset Management’s Guide to Retirement, healthcare costs increase meaningfully in retirement. For individuals 75 and older, healthcare expenses represent 14% of spending—up from 9% in the 55–64 age group.
Source: JP Morgan Asset Management
If you have a long time horizon and are financially able to leave your HSA untouched, the invested funds may grow significantly—and withdrawals for qualified healthcare expenses will be completely tax-free.
Even if your new employer’s health plan is not HSA-eligible, your old HSA remains yours. If you’re maxing out contributions in a new HSA, consider leaving prior balances untouched and invested for retirement. This Forbes article offers additional perspective.
Surprisingly, over 80% of HSA owners are unaware that their accounts can function as a “Healthcare IRA.” Withdrawals used for qualified medical expenses are never taxed—a powerful advantage over traditional IRAs. Leaving balances in cash can lead to lost purchasing power, especially in times of high inflation.
The Non-Rollover Options
Option 2: Close the Account
While it may be tempting to cash out an old HSA, doing so typically triggers ordinary income tax and, if you’re under 65, a 20% penalty. In many cases, half your balance could be lost to taxes and penalties—an outcome best avoided.
Option 3: Combine with a Spouse’s HSA?
Combining HSAs between spouses is not allowed. Transferring funds from your HSA to your spouse’s account is treated as a non-qualified distribution, with the same taxes and penalties as cashing it out.
Option 4: Do Nothing
Doing nothing is an option—your HSA funds remain yours. But if the balance is sitting in cash, it’s slowly being eroded by inflation. If your provider offers investment options, consider putting some or all of your balance to work. At the very least, those funds could be helpful in covering future unexpected medical expenses.
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