Here Is What Happens to Your HSA if You Leave Your Job
If you’ve been laid off or decided to leave your job, you may be wondering what will happen to your health savings account (HSA). Since you’re the owner of your HSA, it’ll follow you wherever you go. This means you’ll still have your HSA, whether employed, unemployed or switching jobs.
What Is an HSA and How Does It Work?
A health savings account is a type of savings account dedicated to helping you pay for qualifying medical expenses. You can use your HSA for:
- Vision and dental care
- Over-the-counter drugs and prescription medications
- Chiropractic care, massages and other forms of complementary treatment
- Addiction treatment and recovery
- Medical supplies such as first-aid kits and health-monitoring equipment
- Copayments, deductibles and coinsurance
An HSA is not health insurance — rather, it’s an account you can use to pay for medical expenses not covered by your current plan.
Why Set up an HSA?
HSAs come with certain tax advantages, including tax-free contributions and withdrawals. You also won’t have to pay taxes on the interest your HSA accrues.
How Do You Open an HSA?
You can open an HSA through your employer if you have the option or with a bank, credit union or other financial institution. In either case, you must be enrolled in a qualified high deductible health plan (HDHP) to be eligible to open a health savings account. Your health plan must have a deductible that meets the requirements set by the IRS. For example, the minimum deductible for an HDHP in 2023 is $1,500.
Other eligibility requirements include:
- You can’t have other health insurance, including Medicare
- Someone else couldn’t have claimed you as a dependent on their prior year’s tax return
Through Your Employer
If you open an HSA at work, your employer will contribute funds to your HSA on your behalf. Here’s how it works:
- You agree to reduce a portion of your salary.
- Your employer contributes the amount taken from your salary to your HSA.
Since these contributions are not technically wages, the IRS does not tax them.
On Your Own
The first step to opening an HSA on your own is finding a financial institution that offers this type of account. Start your search online or contact your health insurer for a recommendation. Your current bank, brokerage firm or credit union can send you in the right direction, too.
Before opening an HSA on your own, find out the following:
- Fees you’ll have to pay, if any
- Services and features offered
- How you’ll access your money and check your balance
Lastly, think about how you’ll contribute money to your HSA. You’ll likely contribute cash already taxed and then claim a tax deduction for any contributions you made when you file your tax return.
What Happens to Your HSA if You Quit Your Job?
If you quit or change your job, you won’t lose your HSA. Your HSA and its funds, including the funds your employer contributed, are owned by you, whether or not you keep your job. However, if quitting your job means you’ll lose your HDHP, you can no longer contribute to your HSA — you’ll have to wait until you enroll in an HDHP to start adding funds again.
Can you still withdraw from your HSA if you lose your HDHP? You sure can. As long as you use the funds to pay for qualified medical expenses, you can access your funds regardless of the type of plan you have or if you’re uninsured and you can do so free of taxes and penalties.
What Happens to Your HSA if You’re Fired or Laid Off?
Did you get fired from your job? No worries – you still own your HSA. Same as if you quit your job, your employer will stop contributing to your HSA once you’re terminated, and you won’t be able to add funds if you lose your HDHP. But you can still use your HSA for qualified medical expenses and start contributing once you’re re-enrolled in an HDHP.
If you were laid off, you might have access to certain benefits. For example, if you’re currently receiving unemployment compensation, you may be able to use your pre-taxed funds in your HSA to pay for monthly insurance premiums.
How Do You Transfer Your HSA From Your Old Employer?
You do not need to keep the same HSA provider if you quit your job or get fired – it’s completely up to you. You can transfer your funds to a new HSA provider any time you wish, and it’s usually a simple process.
If you want to keep your HSA with your old employer, know that you may have to pay a maintenance fee to keep it open.
Submit a Transfer Form
Transferring funds to a new HSA typically involves completing a transfer form. You may be able to complete a transfer form online through your HSA provider’s website. If that’s not an option, call your provider and ask them to mail you the form.
Note that there may be a transfer fee to send funds from your former HSA to your new one.
Complete a Rollover
You can also initiate a rollover. With a rollover, you’ll ask your current HSA provider to send your funds via direct deposit or check. You’ll then have 60 days to deposit that money in your new HSA. If you miss the deadline, you may have to pay a penalty and taxes to the IRS.
What if You Want to Close Your HSA?
You can close your HSA at any time. However, you’ll need to pay taxes on any money you withdraw that you don’t spend on qualifying medical expenses. You’ll also have to pay a penalty if you don’t use HSA funds for medical expenses and are under age 65. To avoid taxes or penalties, consider keeping your HSA open while you look for a new job or HSA provider. It could be worth it in the long run.
Learn About HSAs From The Difference Card
Once you open an HSA, it’s yours to own and take with you wherever you go — whether you change employers or are unemployed. As long as you continue to meet the eligibility requirements, you can enjoy your HSA and its many benefits.
Are you interested in opening an HSA or offering HSAs to your employees or clients? Learn more about HSAs from The Difference Card or request a custom proposal today.
