What are the rules regarding rollovers and transfers of HSA funds?

An individual may withdraw any portion or all of the funds from one HSA or Archer MSA and roll them into an HSA with another custodian or trustee. However, if the accountholder receives the funds directly, they are required to roll the funds into a new HSA within 60 calendar days of receipt of the funds. Only one HSA rollover is allowed in a 12-month period, beginning on the date of distribution receipt, not on the date it is rolled into another HSA.

Rollovers are not included in income, are not deductible and do not count against the IRS annual contribution limits. If funds are not rolled over within 60 days, it becomes a normal distribution and the individual will need to have qualified expenses to offset the withdrawal to avoid income taxes and a 20 percent penalty.

Individuals may also direct a custodian or trustee of an Archer MSA or an HSA to transfer funds directly to another HSA custodian (called Trustee-to-Trustee Transfer) without ever having direct control or custody of the funds. There is no limit to the number of trustee-to-trustee transfers an individual can make during any calendar year. Trustee-to-trustee transfer contributions are not included in income, are not deductible and do not count against the IRS annual contribution limits.