Managing one or more Health Savings Accounts can seem complicated. Laura answers a listener question about what do to when you end up with more than one HSA. Find out how these special accounts save money, the rules for using them, who can have one, and where to open one up.
Can You Have Multiple Health Savings Accounts (HSAs)?
I received a question about managing multiple accounts from a member of my Dominate Your Dollars Facebook group named Abeeku. He says:
“How many HSAs can I have? I just got a new job that will match contributions if I sign up with their HSA provider. But I already have one from my previous job. Would it be a good idea to keep the older HSA for long term investment purposes?”
Thanks for your great question, Abeeku. You can have as many HSAs as you like, however, you can’t exceed the annual contribution limits that I mentioned.
You can have as many HSAs as you like, however, you can’t exceed the annual contribution limit.
How to Consolidate Health Savings Accounts (HSAs)?
Many companies offer high deductible health plans and a recommended a preferred HSA. So what should you do if you’re like Abeeku and already have an HSA? Maybe you don’t want the hassle of having more than one.
First, compare the fees and options of both accounts to understand which one costs less and gives you more investment flexibility. If you decide that you only want a new HSA, here are your options:
- Open a new HSA, spend down your old account to zero and close it.
- Open a new HSA, rollover funds from your old account into the new one, then close the old account.
If you don’t want a new HSA, but are eligible for employer contributions, ask the payroll or benefits department if you can have deposits sent to your current institution. This should be easy to do; however, you may get some resistance because it takes a little extra administrative work.
If your employer insists that you open an HSA with their recommended institution in order to qualify for employer contributions, go ahead and comply so you don’t miss out on free money!
If you feel strongly that you want your contributions to end up in your existing account, there’s still a way to do it. You can move money from an employer-preferred HSA into your own in one of two ways.
The first is to do a rollover where the funds are sent from the HSA custodian to you. Then you send the money to another account custodian. As long as the transaction is completed within 60 days you don’t trigger taxes or a penalty. But you can only do an HSA rollover once a year.
Another option that isn’t limited in frequency is to complete a trustee-to-trustee transfer. One custodian sends the funds directly to another custodian. You can do this as often as you like with no taxes or penalty, however, you may be charged a transfer fee.
What Can You Pay For With a Health Savings Account (HSA)?
Once you have money in an HSA, it’s important to understand how you can spend it without breaking the rules. The IRS says for an expense to be qualified, it must pay for healthcare services, equipment, or medications.
The IRS says for an expense to be qualified, it must pay for healthcare services, equipment, or medications.
Check out the full list of qualified expenses in IRS Publication 502, Medical and Dental Expenses. There are some you might not expect, such as acupuncture, chiropractic, drug addiction therapy, and capital expenses for home improvements related to medical issues.
You need a prescription to buy drugs (except for insulin) with HSA funds. So if you can get a prescription for drugs that are also available over-the-counter, such as Allegra, you can also buy them using tax-free HSA money!
You can also reimburse yourself for past medical expenses, if they occurred after your HSA was established. It’s a good idea to save all your prescriptions and receipts as backup for your taxes.
In general, you can’t use HSA funds to pay your health insurance premiums—unless you’re unemployed, are over age 65, or have a long-term care policy.