A health savings account (HSA) is designed to stay with you for life, but you could lose it if you don’t use it. The following is information you may not know about your HSA, including how to keep it if you have stopped using it.
HSAs were created to make medical expenses more affordable. They allow people with high-deductible health plans to set aside tax-deferred funds in an account that can be used to cover qualified medical costs, including deductibles, co-pays, and over-the-counter medications. Unlike flexible spending accounts (FSAs), HSAs do not expire at the end of the year. You can carry over funds and keep your account when you change jobs, which allows you to build it up for future expenses, or to save for retirement.
Many people in the U.S. who open HSAs leave them inactive eventually. Some may not have enough cash to deposit. Others are no longer eligible to contribute, after changing to a different type of health plan. Some people simply forget that they have a health savings account.
If too much time has passed since you last contributed to or used your HSA, the bank holding the account may decide to turn the money over to the state as unclaimed funds. Before that occurs, the bank will likely send you a letter in which the term “escheatment” is used. This word means the transfer of property or assets to the state.
Escheatment is based on the concept that any property has an owner, and the owner is the state if no other claim to ownership exists or can be readily identified. Health savings accounts are often held by credit unions or banks that treat them as regular checking accounts instead of retirement investment accounts. For that reason, HSAs can fall under escheatment law in some states.
If your HSA account has become dormant, tell the bank you want to keep it. Even if the account has a low balance and you are unable to contribute at present for one reason or another, you may be able to make contributions and use your HSA in the future. Also keep in mind that, per IRS rules, the clock starts for eligible expenses when you open your HSA, not when you contribute funds. You can save your receipts for medical expenses now and reimburse yourself out of your HSA at a later time when you are able to make deposits.
Most HSA funds are kept in checking-type accounts. Another option, if you have a significant balance, is to invest the money and let it grow through compounding. If you put your HSA money in a fund that earns interest, the gains are tax-free.
Our experienced agent will be happy to review your HSA options with you and help you keep your account.