What Happens to HSA After Termination?

When your employment or eligibility for an HSA ends, you might wonder what happens to your Health Savings Account (HSA). Don't worry; we've got you covered with the complete guide to understanding the fate of your HSA after termination.

1. What happens to your HSA funds:

• If your HSA is individual, you keep the account and can still use the funds for qualified medical expenses.
• If your HSA is employer-sponsored, you have options like rolling over the balance to a new HSA, using the funds for medical expenses, or withdrawing the remaining balance (subject to tax implications).

2. Accessing your HSA post-termination:

• You can continue to use the HSA for eligible medical expenses, even if you're no longer contributing to it.
• You cannot make new contributions to the HSA after termination unless you have a new HSA-eligible health insurance plan.

3. Potential penalties and taxes:

• Withdrawals for non-medical expenses before age 65 may incur a 20% penalty in addition to being taxed as income.
• After age 65, withdrawals for non-medical expenses are taxed as income but exempt from penalties.

4. Keeping track of receipts:

• It's essential to keep receipts for all qualified medical expenses paid from your HSA, even after termination, as you may be required to provide documentation to the IRS for tax purposes.

Remember, HSAs offer tax benefits and flexibility, so understanding what happens to your account after termination is crucial for making informed decisions about your healthcare expenses.

When your employment or eligibility for a Health Savings Account (HSA) ends, it's important to understand your options. Don't worry; we're here to explain everything you need to know about handling your HSA post-termination!

1. What happens to your HSA funds:

• If you hold an individual HSA, you retain full ownership and can utilize your funds for qualified medical expenses at any time.
• For employer-sponsored HSAs, you can consider rolling over the balance to a new HSA account, using the funds for qualified medical costs, or even withdrawing the funds (note that taxes may apply).

2. Accessing your HSA post-termination:

• Good news! You can continue to use your HSA for eligible medical expenses, even after you stop contributing.
• However, if you want to make new contributions, you’ll need to have a new health insurance plan that qualifies for HSA contributions.

3. Potential penalties and taxes:

• Be cautious: if you withdraw from your HSA for non-medical expenses before turning 65, you'll face a hefty 20% penalty, plus income tax on those funds.
• However, once you turn 65, you can withdraw without penalties, but you will still have to pay income tax on any non-medical withdrawals.

4. Keeping track of receipts:

• Always keep your receipts for qualified medical expenses paid using your HSA. Even after termination, you may need to show documentation for tax purposes to the IRS.

HSAs are a fantastic tool for managing healthcare costs and benefits; understanding the rules after termination can help you maximize your account's potential!