A Health Savings Account (HSA) is a fantastic tool for covering medical expenses while enjoying unique tax benefits. But if you’ve left a job and your HSA is with a high-fee provider, those fees can quickly eat away at your savings. While you can’t roll over HSA funds into a traditional retirement account, there are smarter ways to manage your account, reduce fees, and even make it part of your long-term financial plan.
What Makes an HSA Special?
HSAs offer triple-tax advantages:
- Contributions are tax-deductible.
- Funds grow tax-free.
- Withdrawals for qualified medical expenses are also tax-free.
Unlike other health-related accounts like Flexible Spending Accounts (FSAs), HSA funds never expire. This means you can let your balance grow over time, making it a valuable asset for future medical expenses—especially in retirement.
Avoiding the Fee Trap
If your current HSA charges high monthly maintenance or investment fees, you’re not stuck. Many providers let you transfer your HSA balance to a new account without losing your tax benefits. Look for an HSA provider with low fees, no restrictions on investing, and a wide range of investment options. Popular low-cost providers include Fidelity, Lively, and HSA Bank.
To transfer your HSA:
- Open a new account with a low-cost provider.
- Request a trustee-to-trustee transfer from your current provider.
Be aware that some providers charge transfer or account closure fees, but the long-term savings on fees and better investment opportunities usually outweigh these costs.
Can You Roll It Into a Retirement Account?
Unfortunately, you cannot roll over HSA funds into retirement accounts like IRAs or 401(k)s. However, HSAs can still play a key role in your retirement planning. After age 65, you can use HSA funds for non-medical expenses without penalties—though these withdrawals will be taxed as regular income.
Even better, withdrawals for qualified medical expenses remain tax-free at any age. This makes your HSA an excellent way to pay for Medicare premiums, long-term care insurance, or other healthcare costs in retirement.
Invest for the Future
If your HSA allows investments, consider using it like a retirement account. Invest funds you don’t anticipate needing for current medical expenses in low-cost mutual funds or ETFs. Over time, your investments can grow tax-free, potentially offsetting any account fees.
While you can’t convert HSA funds directly into a retirement account, transferring to a low-cost HSA provider and investing your balance can protect your savings from fees and help you prepare for future healthcare costs. Treat your HSA as part of your overall financial strategy, and you’ll make the most of this unique, tax-advantaged account.
