If you have a Health Savings Account (HSA), what happens to it when you leave your job? Don't worry - we've got you covered. In this blog post, we'll discuss your options for what to do with your HSA after you leave. We'll also give you tips on making the transition as smooth as possible. So, whether you're retiring, taking a new job, or leaving your company, read on for information.
What Is An HSA?
A Health Savings Account (HSA) is an excellent option for those looking to save money on healthcare expenses. These accounts offer tax-free contributions that can be used to pay for various medical costs, such as doctor visits, prescription drugs, and other qualified expenses. Contributions are tax-deductible and roll over from year to year, allowing you more flexibility with your spending. High deductible health plans (HDHP) are plans typically associated with an HSA.
An HSA allows you to pay for medical expenses with pre-tax funds without paying high costs or premiums of an insurance plan. With an HSA, you can customize it to make the most of your savings while ensuring access to quality healthcare services.
What Happens To An HSA When You Leave A Job?
When you leave your job, there are a few important things to consider regarding your health savings accounts (HSA). Depending on your plan, most HSAs can stay open and grow even after leaving employment. Generally, you can keep contributing to the account until the April 15th tax deadline of the same year you left. It is essential to weigh your options carefully when maintaining an HSA post-employment.
If you decide to keep it open, several spending and investment opportunities could benefit short- and long-term health costs. However, if keeping up with an HSA becomes too much of a burden for you after leaving a job, it may be wise to cash out the account or roll it over into another qualified tax-advantaged account. With careful consideration and research, deciding what happens with your HSA when leaving a job can help in pursuing future financial success.
How Long Does An HSA Last After Leaving A Job?
The length of time an HSA can remain open depends on the specifics of your plan. If you keep it open, most HSAs will remain active indefinitely. However, some plans may have a certain period specified in which contributions must be made before closing the account. Contributions can also be made until the April 15th tax deadline of the same year you left employment.
It’s important to note that if you close or cash out your HSA after leaving a job, you will owe taxes on any remaining money in the account and pay a 20% penalty for withdrawing funds before age 65.
What Happens To Your Employer Contributions?
Knowing what will happen to your employer contributions when you leave a job is important to take advantage of any potential financial benefits. Generally, it is up to the plan administrator (typically the employer) to decide on the disposition of former employer contributions. Your rights may be immediately vested and your account balance may be available for withdrawal or transfer, or it could be subject to future vesting rules before access is possible.
Additionally, depending on your employer's contribution, you may use certain tax tactics to ensure you receive the most benefit from these funds. HSA providers, plan administrators, and tax professionals are all great resources when understanding the rules for employer contributions. Pre-tax HSA funds can be a great way to increase your savings for medical expenses, so don’t forget to take full advantage of them.
How Can You Use Your HSA Funds If You Leave Your Job?
HSA funds can be used for qualified medical expenses, such as doctor visits and prescription drugs. You may also use them to pay for certain qualified uninsured medical costs or save money on long-term care. Here are some tips to make the most of your HSA funds if you leave your job:
1. Rollover Your HSA Funds Into A New Account
Many individuals roll their HSA funds into another account, such as an IRA or 529 plan. This can be beneficial for long-term savings and tax benefits.
2. Transfer HSA Funds To A Spouse's Plan
If you're married, you may transfer the balance of your HSA to your spouse's account if they have an existing HSA at their place of employment. New HSA custodian rules may apply.
3. Take Distributions From The Account
Depending on how much money is in the account, it might make sense to take distributions and use them for medical expenses incurred after leaving the job. Be sure that any withdrawals meet IRS guidelines so that you don't incur any penalties.
4. Leave The HSA Open
You may also leave the account open and continue contributing to it as long as you have earned income. This option allows you to save for future medically eligible expenses and take advantage of its tax benefits.
5. Cash Out The Account
Lastly, you can cash out your HSA if necessary, although this isn't always recommended since it removes the tax advantages associated with HSAs. Also, cashing out will trigger taxes on any HSA contributions made using pre-tax dollars. Health insurance premiums are not considered qualified medical expenses, so they cannot be used to pay for health insurance.
Final Thoughts
When leaving a job, it is important to consider what will happen to your HSA. Depending on your situation and preferences, several options are available, including rolling the funds over into another qualified account, transferring them to a spouse's plan, taking distributions, or cashing out the funds. Careful consideration of these different options can ensure that you make the most of your hard-earned money while still accessing quality healthcare services.
If you’d like more information about using your HSA funds after leaving your job, set up a call with us here at Bolder. We’re happy to help you figure out your budget for healthcare expenses and other goals and set you on the path to financial success.
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