What Happens To Your HSA If You Leave Your Job?

December 11, 2018

One advantage of an HSA (health savings account) is that the money you contribute is yours to keep. Unlike an FSA, it’s not use it or lose it. Even if you’re no longer enrolled in an HSA-eligible high deductible health insurance plan, you can continue to use your HSA tax-free to pay out-of-pocket qualified medical expenses. At 65, you can even use it for any purpose without a penalty (and it’s still tax-free for eligible expenses including some Medicare and long-term care insurance premiums).

What to do with HSA money when you leave a job

What happens to your HSA once you leave your job? Generally, you can leave the account where it is, but you also have the option to transfer it to a new custodian without any tax consequences. In fact, you may even be able to transfer your HSA while you’re still employed at your job.

This can especially be a good idea if you want to invest your HSA since the investment choices vary based on where you have your account. You can see a breakdown of fees and investment options of some of the top HSA providers here.

What I’m doing with my HSA — without leaving my job

For example, I chose to transfer my HSA to Health Savings Administrators since I could invest all of the money in the account (many providers require you to keep a balance in cash), the fees are relatively low, and it provides access to specialized index funds from Dimensional Fund Advisors (DFA) that you normally can only access through a DFA-approved advisor (which means you usually have to pay their advisory fee).

This doesn’t mean they’re right for everyone. If I didn’t plan to invest the money or if I preferred other investment options, I may have made a different choice.

The one place you can’t take your HSA

There is one place you can’t take an HSA with you. When you pass away, your HSA money will be paid out to your beneficiaries and will be fully taxable. They don’t have the option to defer withdrawals like an inherited retirement account. For that reason, you may want to choose beneficiaries with a low tax bracket or even a charity as your beneficiary. Or just make sure there’s nothing left in the account when you die…

The whole idea of an HSA is to give you more control over your healthcare spending. Remember, it’s your money. Make sure it’s working hard for you, wherever that may be.