The Account People Forget to Roll Over
Clients probably remember their 401(k) plan assets. Remind them of their HSAs.
It’s early in the year. Many employees are changing jobs or looking for greener employment pastures.
They may need to roll over their employer-sponsored accounts, such as their 401(k) plan accounts and health savings accounts.
While rolling over an HSA may be the last thing on a client’s mind, leaving an HSA with a former employer’s provider can cost your clients money and cause them to miss out on valuable investment opportunities.
As your clients look to you to help them navigate economic volatility, and shore up strategies for savings for retirement and health care expenses, rolling over an HSA can help them get a leg up on saving for long term health care costs and help differentiate you as a savvy advisor.
HSA Basics and Why They Matter
HSAs are triple tax-advantaged accounts that enable account holders to save pre-tax dollars, which they can withdraw tax free for qualified health care expenses.
The funds in HSAs never expire and can be invested tax-free.
Once account holders turn 65, they can continue to use funds in their HSA tax-free and can withdraw funds for non-medical expenses at their regular tax rate.
When discussing HSAs with your clients, keep in mind that:
- To open and contribute to an HSA, the account holder must be enrolled in a high -deductible health plan (HDHP), the parameters of which are set annually by the IRS. For 2023, these plans must have a minimum deductible of $1,500 for individual coverage, and $3,000 for family coverage, and an out-of-pocket maximum of $7,500 for individual coverage and $15,000 for family coverage.
- HSAs have annual contribution limits. In 2023, these are $3,850 for individual coverage and $7,750 for family coverage.
- Those 55 years or older are eligible to contribute an extra $1,000 “catch-up” contribution.
Even if clients are not currently enrolled in an HSA-eligible health plan, they can still use their HSAs for health-related expenses, and continue to invest their HSA funds.
Why Roll Over an Old, Employer-Sponsored HSA/?
It pays to be proactive with your clients’ HSA money: Leaving their funds in an old, mismanaged HSA can forfeit the compounding value of time and cause the clients to miss out on important opportunities to build wealth and save for health care expenses in retirement.
These accounts may incur additional expenses, such as account maintenance fees, and restrictions or heavy fees on investing.
In addition, many providers use outdated technology that makes it difficult for account holders to access and manage their accounts.
Moving your clients’ HSAs over may offer them better investment options, lower investment thresholds, and reduced expenses.
Switching to a provider that invests in technology and user-friendly features can empower your clients to use their HSA to its full potential.
Provider Quality
Not all HSA providers are created equal.
You want to find a provider that makes it as easy as possible to transfer funds and provides support through every step of the process.
There are two ways to transfer funds to a new HSA: a trustee-to-trustee transfer or direct rollover.
A trustee-to-trustee transfer is one of the more popular, and fastest, ways to transfer funds between HSA accounts.
With this method, the original HSA provider makes a direct payment to the new account. The account holder never takes possession of the funds.
There is no limit to the number of trustee-to-trustee transfers an account holder can make and this method helps avoid potential tax withholdings that may occur when transferring funds.
A direct rollover involves receiving a check from the original HSA provider for the full amount of the account.
The account holder must deposit the money into the new account within 60 days or expect to pay income taxes on those funds, plus a 20% penalty on any remaining balance from the original account.
The account holder is limited to one HSA rollover every 12 months.
If your client already has assets invested, the provider may require them to be cashed out before they can be transferred, though some will enable invested funds to be transferred in-kind.
Ask the providers what their policies are before transferring the funds, as you don’t want to create additional delays or headaches for your client.
When transferring or rolling over your clients’ HSA, be sure to look out for any rules or procedures that can cause your clients additional money, time, or stress or reflect poorly on your role as an advisor.
This includes additional costs to transfer funds, restrictions on transferring investments, or unresponsive, unhelpful customer service
Overall, you want to enable your clients to work with an HSA that offers:
- Easy-to-use account dashboards and all the features you would expect from a modern, financial product.
- Responsive, knowledgeable customer service who are well-versed in HSA rules and regulations.
- A variety of investment options and low barriers to entry, including fees or account minimums, when it comes to investing.
A Head Start on Health Care Savings
HSAs are an often overlooked opportunity to enable your clients to get a leg up on planning and saving for health care expenses in the future, including retirement.
As employees change jobs every four years on average, it’s worth asking about old HSAs.
Moving your clients’ old HSA to a provider that enables easy options for investing and account management will enable them to make the most of their money and position you as a valuable resource for planning their financial future.
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