On the topic of investing in your HSA…
Some of you might be interested in moving your HSA money to a new provider with lower fees, better investment options, etc.
Fortunately, it’s not only possible to move your money, it’s also quite easy to do. The main thing that you’ll have to decide — other than where you want to move your money — is how you want to make the move.
There are two main options. You can either request a transfer or you can do a rollover. Which one is right for you? Read on to find out.
Transfers vs. rollovers
From a convenience standpoint, transfers win. You open an account, fill out a transfer request form, and your the new trustee will fetch your money from the old one. You can do this as often as you want.
In contrast, with a rollover, your old provider will send you a check. You’ll then have sixty days to re-deposit this money with your new provider. If you don’t, you’ll be subject to taxes and penalties. You also have to report the move to the IRS.
If your HSA offers a checkbook, it’s a bit easier. Just write a check and submit it directly to the new provider along with their rollover contribution form.
No matter how you execute the rollover, however, you are limited to doing this once every twelve months. And no, this restriction is not once per calendar year. It’s once per twelve months, with the clock starting when you do the rollover.
Based on what I’ve said above, this seems like a no-brainer. You should do a direct transfer. Right? Well… That depends.
Does your current HSA provider charge a fee for outbound transfers? If so, you might be better off with a diy rollover. While transfer fees aren’t huge — typically in the $25-$50 range — it’s not particularly hard to do a rollover, so why not?
Funding your HSA in the future
You might also be wondering about the best way of funding your HSA in the future. Should you stick with payroll deduction into your employer’s HSA and periodically move the money out? Or should you contribute directly to your preferred provider?
If your employer offers matching contributions (some do, mine included), then you’ll probably want to stick with payroll deduction. No sense in leaving free money on the table. Just keep the foregoing info re: transfers and rollovers in mind.
You should also consider the tax impact. While your contributions are tax deductible either way, you can save on FICA payroll taxes by doing payroll deduction. This could save you as much as 7.65% — 6.2% for Social Security and 1.45% for Medicare.
Of course, if you earn more than the Social Security wage base, your savings will be reduced. But you’ll still save 1.45% on Medicare taxes by doing payroll deduction vs. making direct contributions, so it’s still worth considering.