Category: Finance

The contribution limits for various tax-advantaged accounts for the following year are usually announced in October, except for the HSA, which comes out in April or May. The contribution limits are adjusted for inflation each year, subject to rounding rules.

You can only contribute to an HSA if you’re covered by a High Deductible Health Plan (HDHP) with no other coverage. You can use the money already in the HSA for qualified medical expenses regardless of what insurance you currently have.

HSA Contribution Limits

	2025	2026
Individual Coverage	$4,300	$4,400
Family Coverage	$8,550	$8,750

Source: IRS Rev. Proc. 2024-25, Rev. Proc. 2025-19.

Employer contributions are included in these limits.

The family coverage numbers are double the individual coverage numbers in some years but it isn’t always the case every year. Because the individual coverage limit and the family coverage limit are both rounded to the nearest $50, the family coverage limit can be slightly more or slightly less than double the individual coverage limit when one number rounds up and the other number rounds down.

Age 55 Catch-Up Contribution

As in 401k and IRA contributions, you are allowed to contribute extra if you are above a certain age. If you are age 55 or older by the end of the year (not age 50 as in 401k and IRA contributions), you can contribute an additional $1,000 to your HSA. If you are married, and both of you are age 55, each of you can contribute an additional $1,000 to your respective HSA.

However, because an HSA is in one individual’s name, just like an IRA — there is no joint HSA even when you have family coverage — only the person age 55 or older can contribute the additional $1,000 in his or her own name. If only the husband is 55 or older and the wife contributes the full family contribution limit to the HSA in her name, the husband has to open a separate account in his name for the additional $1,000. If both husband and wife are age 55 or older, they must have two HSA accounts in separate names if they want to contribute the maximum. There’s no way to hit the combined maximum with only one account.

The $1,000 additional contribution limit is fixed by law. It’s not adjusted for inflation.

Two Plans Or Mid-Year Changes

The limits are more complicated if you are married and the two of you are on different health plans. It’s also more complicated when your health insurance changes mid-year. The insurance change could be due to a job change, marriage or divorce, enrolling in Medicare, the birth of a child, and so on.

For those situations, please read HSA Contribution Limit For Two Plans Or Mid-Year Changes.

HDHP Qualification

The IRS also defines what qualifies as an HDHP. For 2025, an HDHP with individual coverage must have at least $1,650 in annual in-network deductible and no more than $8,300 in annual out-of-pocket expenses. For family coverage, the numbers are a minimum of $3,300 in annual deductible and no more than $16,600 in annual out-of-pocket expenses.

For 2026, an HDHP with individual coverage must have at least $1,700 in annual deductible and no more than $8,500 in annual out-of-pocket expenses. For family coverage, the numbers are a minimum of $3,400 in annual deductible and no more than $17,000 in annual out-of-pocket expenses.

Please note the deductible number is a minimum while the out-of-pocket number is a maximum. The maximum out-of-pocket limit only applies to the in-network number. If the in-network out-of-pocket limit of your insurance policy is too high, it doesn’t qualify as an HSA-eligible policy.

In addition, just having the minimum deductible and the maximum out-of-pocket isn’t sufficient to make a plan qualify as HSA eligible. The plan must also meet other criteria. See Not All High Deductible Plans Are HSA Eligible.

	2025	2026
Individual Coverage
minimum deductible	$1,650	$1,700
maximum out-of-pocket	$8,300	$8,500
Family Coverage
minimum deductible	$3,300	$3,400
maximum out-of-pocket	$16,600	$17,000

Source: IRS Rev. Proc. 2024-25, Rev. Proc. 2025-19.

Contribute From Payroll

If you have a High Deductible Health Plan (HDHP) through your employer, your employer may already set up a linked HSA for you at a selected provider. Your employer may be contributing an amount on your behalf there. You save Social Security and Medicare taxes when you contribute to the HSA through payroll. Your employer may be paying the fees for you on that HSA.

When you contribute to an HSA outside an employer, you claim the tax deduction on your tax return similar to when you contribute to a Traditional IRA. If you use tax software, be sure to answer the questions on HSA contributions. The tax deduction shows up on Form 8889 line 13 and Schedule 1 line 13.

Non-Dependent Adult Children

If your HDHP also covers an adult child who’s not claimed as a dependent on your tax return, each non-dependent adult child covered by the plan can also contribute to a separate HSA in their name at the family coverage level when they don’t have other non-HDHP coverage. This is because they meet the eligibility:

(a) Covered by an HDHP with no other coverage; and
(b) The HDHP policy they have covers more than one person.

Each non-dependent adult child can open a separate HSA on their own with an HSA provider.

Best HSA Providers

If you get the HSA-eligible high deductible plan through an employer, your employer usually has a designated HSA provider for contributing via payroll deduction. It’s best to use that one because your contributions via payroll deduction are usually exempt from Social Security and Medicare taxes. If you want better investment options, you can transfer or roll over the HSA money from your employer’s designated provider to a provider of your choice afterward. See How To Rollover an HSA On Your Own and Avoid Trustee Transfer Fee.

If you are not going through an employer, or if you’d like to contribute on your own, you can also open an HSA with a provider of your choice. For the best HSA providers with low fees and good investment options, see The Best HSA Provider for Investing HSA Money.

When we think about investing, we usually focus on things like returns, company performance, valuation, past track records, or the reputation of the asset management company. But today, as we witness the growing environmental degradation and climate change, there’s a shift in the mindset of many investors.

More and more individuals are beginning to care just as much about how a company operates as they do about how much it earns, by assessing how companies treat the environment, their employees, and society in general. 

That’s why investors are considering investing in green funds, or as they are more commonly known here, ESG funds, as part of their financial planning. These funds are considered a kind of green investment as they focus on companies that act responsibly and follow sustainable business practices.

What Is a Green Fund?

When we talk about green funds, we’re talking about mutual funds that invest primarily in shares of companies that practise environmentally sustainable, socially responsible, and ethically governed business models, such as those involved in renewable energy, electric cars, clean tech, waste management, or companies with strong ESG (Environmental, Social, Governance) ratings. 

The term is not commonly used in India, as here such funds are referred to as ESG funds.When fund managers select the stocks to invest in, they assess how companies handle:

• The environmental impact of their operations: This includes evaluating factors like their carbon emissions, waste management systems, water conservation, pollution control, and energy efficiency. The higher the company scores in these aspects, the more ‘green’ they are considered. For example, a company manufacturing solar cells and wind turbines would score highly on environmental criteria as they help generate renewable energy. Similarly, a business focusing on electric cars will also be looked at favourably by fund managers.

• Their social responsibility: Fund managers score companies on the basis of how they treat their employees, support community welfare, and promote education and healthcare. Other factors like gender equality, labour rights, fair wages, and safe working environments are also closely considered.

• Governance standards: This part involves analysing the qualitative aspects of a company, like its leadership structure, how compliant it is with regulations, its transparency in financial reporting, ethical conduct, and how well it protects its shareholders.

How Do Green Funds Work?

Green funds work the same way as any other mutual fund. They are a pooled investment where a professional fund manager invests the corpus in a diversified basket of securities. What sets green funds apart is the way in which this portfolio is selected. Instead of just looking at financial metrics, managers assess companies on the basis of ESG scores. 

While there is no set standard for ESG scoring, the general idea is to prioritise companies that align with the many ESG parameters. For individuals, investing in these funds also works the same as other mutual funds. You can buy units with a lump sum or through an sip investment plan if you want to take the regular contribution approach.

Purpose and Objectives of Green Fund

The main goal of a green fund investment is to deliver strong returns by investing in companies that score well on ESG parameters. Since these equity-oriented funds are actively managed, managers aim to outperform benchmarks like the Nifty 100 ESG Index. These are long-term vehicles which not only offer environmentally-conscious individuals the opportunity to invest in a diversified portfolio but are also well-positioned to benefit from the growing awareness around environmental sustainability and ethical business practices. 

As more people and companies recognise the importance of environmental protection and honest governance, businesses that align with ESG principles will likely gain a competitive edge.

Since equity means ownership, the more socially aware investors these days try to prioritise and support companies that align with their values. If you too want to create long-term wealth but wish to do so by investing in ESG-responsible companies, consider consulting with a mutual fund investment planner first. They can help you identify the right green investment that matches your financial goals and values.

Types of Green Funds

The main type of green investment funds available in India today are the ESG funds. These funds gained significant popularity during the COVID-19 pandemic, so they are still an emerging category. Other than these, several thematic funds focus on specific sustainability-related sectors, like renewable energy and natural resources. 

Thematic funds are considered very risky due to their sector concentration. As the name suggests, they focus on a narrow theme, which means their performance is highly dependent on the success of that particular industry. For example, a renewable energy fund can sometimes see peaks but can also face steep declines if the sector underperforms. A financial planner can assess your risk tolerance to help you understand whether or not such funds align with your financial goals and investment horizon.

Key Components of Green Funds

Fund managers assess companies based on their ESG scores to ensure they are making a genuine green investment. This ESG assessment forms the core of the fund’s selection process and helps align the portfolio with the values of its socially and environmentally conscious investors. Components include:

Environmental Responsibility

• Funds evaluate how companies treat the environment by looking at factors such as:
• How companies use and conserve water
• Their efforts to control pollution
• Waste management practices
• Company’s impact on climate
• Carbon emissions
• Their use of renewable resources
• Whether the company makes energy-efficient choices

Social Impact

• This refers to how a company treats its employees and how responsible they are towards society as a whole. Includes factors like:
• Gender diversity and equal pay
• Labour rights
• Employees welfare
• Contributions towards public healthcare and education
• Impact of business on the local communities

Governance Practices

Fund managers evaluate the following factors to ensure the company they’re investing in has ethical governance:

• Board structure and compensation
• Transparency in disclosing profits and income statements
• How they treat their shareholders
• History of corruption in the organisation
• A company’s political contributions

ESG Ratings

Funds assess ESG scores made by independent agencies to ensure the companies they select score well on ESG compliance. As stated previously, there is no clear definition of ESG, so different agencies, like Morningstar, MSCI, and Sustainalytics have different ESG scoring criteria. A qualified investment planner can help you understand how these components work together to form a green portfolio.

Benefits of Green Funds

By investing in green funds one can reap many benefits:

• Diversification and professional management: A green fund invests in an expertly selected basket of stocks to lower risk. Some green funds, like thematic funds revolving around green energy, can be very risky as their diversification is only spread across a handful of industries.
• Long-term investment: Most green funds are equity-oriented and thus perform better over the long term. Also, ESG companies keep up with sustainability trends, so they are expected to grow as awareness around ESG factors increases. For example, an electric car company can potentially benefit greatly as governments push for cleaner transportation and consumers shift towards eco-friendly vehicles. That’s why a retirement planner might recommend green funds to clients with a long investment horizon.
• Moral satisfaction: By investing in a green fund, you are investing in companies that align with your personal values. Just knowing that your money is invested in forward-thinking and sustainable companies can bring satisfaction along with returns.
• SIP option: Like other mutual funds, green funds allow you to make fixed and regular contributions through SIPs. This option offers many advantages like building financial discipline, affordability, convenience and flexibility, and rupee cost averaging.
• Tax benefits: Equity-oriented funds are more favourably taxed compared to debt-oriented funds. A tax consultant can help you understand the capital gains tax implications of your investments and advise you on how you can keep more of your hard-earned money through personalised strategies.

Challenges and Barriers to Green Funds

Now that we’ve discussed the advantages, it’s only fair to understand the challenges green funds face:

• Limited universe: One of the main challenges is the relatively small pool of companies that meet ESG standards, which limits the number of stocks fund managers can choose from when building a diversified portfolio.
• Lack of definition: What a green or ESG fund is, is not clearly defined by regulatory bodies. ESG scores also vary across independent agencies which makes it hard for funds to find companies that are ESG-compliant. Some ESG funds also invest heavily in companies that make substantial profits from tobacco, cigarettes, and fossil fuels. 
• Inadequate historical data: ESG funds are relatively new in India, so the availability of long-term performance data is limited. This lack of information makes it hard for investors to assess consistency and whether these funds are capable of providing better risk-adjusted returns in the future.
• Higher risk: Since most green funds are equity-oriented and generally concentrated in select sectors like clean energy, banking, or technology, they carry higher risk.
• Greenwashing: When companies exaggerate or even falsely claim their practices are sustainable and environment-friendly, they are said to be engaging in greenwashing. Some companies use manipulative marketing or selective reporting to come across as more responsible than they actually are, which is a problem for funds and investors alike.

Creating and Managing a Green Fund

If you’re looking to make a green fund investment, ESG funds are your best option at the moment, followed by high-risk green energy thematic funds. While the number of such funds is still limited, rising awareness around sustainability can maybe drive both demand and long-term value in the future. 

Before you invest, consider several factors such as the fund manager’s track record, fund history, the asset management company’s reputation, the fund’s AUM, risk-adjusted returns, alpha, and beta.

You should also review the fund’s holdings to make sure its investments truly reflect your values and that the fund isn’t investing in companies that are greenwashing. As always, make sure the fund’s philosophy matches your own, and that your investment aligns with your goals and tolerance for risk.

Conclusion

ESG and green investment funds are a relatively new category of funds in India. They are designed to combine financial growth with environmentally sustainable and ethical business practices. Every day, more and more investors become conscious of the impact their money can make, so these funds give them a viable route to align their personal values with long-term wealth creation. 

While these funds face many challenges, increasing regulatory focus and growing awareness around issues such as climate change can help strengthen them in the future. Several factors should be assessed before investing in mutual funds. Get personalized investing advice by giving our experts a call today!

Can you gift mutual funds in India? Discover the legal ways, tax rules, and the best method to gift mutual fund units to your family or friends with ease.

In Indian families, gifting is often a heartfelt tradition. But today, beyond gold or gadgets, people are also looking to gift financial assets, like mutual funds, to their loved ones. A natural question arises—can mutual funds be gifted in India, and if so, what’s the proper way to do it?

Let’s walk through the legal, procedural, and tax-related aspects of gifting mutual funds, based on guidelines from AMFI, SEBI, and IT Department rules and regulations.

Can You Gift Mutual Funds in India?

Yes—but not as freely as you might think. Mutual fund units are not like jewellery or cash, which you can hand over easily. The transfer of mutual fund ownership is regulated, and depends on how the units are held—demat or physical.

As per SEBI and AMFI, mutual fund units:
– Can be transferred as a gift only if held in demat form, via off-market transactions.
– Cannot be transferred if held in non-demat (physical) form—except on death (i.e., transmission).
– Cannot be transferred just by executing a Gift Deed.

1. Best Option: Invest Directly in Recipient’s Name
The simplest way to “gift” mutual funds is by investing directly in the name of your family member.

Example:
You want to gift your daughter a mutual fund. Instead of buying it in your name and trying to transfer it later, you:
– Use her PAN, KYC, and bank details.
– Invest directly into a mutual fund in her name.

For minor children, the investment will be made under their name, with a guardian (parent) managing the account until the child turns 18.

The cleanest approach is to directly invest in your child’s name. However, be aware that once your child turns 18, they gain full control over the investments, as it becomes their money. This means you’ll have no authority over the funds once they reach adulthood. So, it’s important to exercise caution, as their future decisions might not align with your expectations.

According to the clubbing provisions, if you withdraw the investment before your child turns 18, the gains will be taxed under your income, as the investment is still considered part of your financial assets. In the case of gifting mutual funds to a spouse, if the funds come from your earnings, the income generated from the mutual fund will be taxed under your income, not your spouse’s. This is because the source of the income matters for tax purposes.

2. Gifting via Demat Transfer (Off-Market)
If you hold mutual fund units in demat form, and your recipient also has a demat account, you can transfer them via an off-market gift transaction.

Steps:
1. Ensure both donor and recipient have demat accounts (CDSL or NSDL).
2. Submit a Delivery Instruction Slip (DIS) to your Depository Participant.
3. Specify the recipient’s demat details and indicate it’s a gift.

This is the only SEBI-approved method for gifting existing units. Here’s a simple example of an off-market transaction:

Imagine you want to gift some mutual fund units to your brother, who has a demat account. Here’s how an off-market transaction would work:

1. Step 1: You have mutual fund units in your demat account, and your brother also has a demat account.
2. Step 2: You fill out a Delivery Instruction Slip (DIS), which is like an instruction to transfer the units from your demat account to your brother’s demat account. You’ll mention the mutual fund units and his demat account details.
3. Step 3: You submit the DIS to your Depository Participant (DP), which is the financial institution managing your demat account.
4. Step 4: The transfer happens off-market, meaning it’s a private transfer between two parties and does not happen through the stock exchange.
5. Step 5: Your brother now owns the mutual fund units in his demat account, and the transfer is complete.

This is an off-market transaction because the transfer occurs directly between you and your brother, outside of the stock exchange, with the help of a DIS form.

3. Why a Gift Deed Alone Won’t Work

A Gift Deed, though legally valid for movable property, does not serve as a tool to transfer mutual fund units. Mutual funds in physical form are non-transferable, and AMCs or RTAs do not accept gift deeds for ownership change.

You may use a gift deed as a supporting document when doing an off-market transfer via demat, but on its own, it’s not effective.

4. Use a Will for Post-Death Transfer (Transmission)

If your intention is to pass on mutual funds after your death, then a Will is the correct instrument.

Transmission Process:
– Units are transferred to nominee or legal heir after submission of required documents (death certificate, KYC, Will copy, etc.).
– If there’s no nomination, transmission is more complex and may require legal heir certificates or probate.

A nomination ensures quicker access, while a Will provides legal clarity on inheritance.

Do note that nominees by default will not be considered as asset owners. They act like trustees to transfer the assets to the legal heirs.

5. Can You Gift via Online Platforms?

Some fintech platforms like Kuvera or Zerodha Coin allow you to gift mutual funds where:
– You choose a scheme.
– Pay from your bank account.
– The recipient receives a link to accept the gift and complete their KYC.

Units are then directly allotted to the recipient, just like a fresh purchase.

Convenient, but not a “transfer”—it’s a new investment on behalf of someone else.

Income Tax Implications of Gifting Mutual Funds

Here’s where things become critical—especially if you’re gifting to spouse or minor children.

1. Gift Tax – Section 56(2)(x)
– Gifts from relatives (as defined under the Income Tax Act) are fully tax-exempt, regardless of amount.
– Gifts from non-relatives exceeding Rs.50,000 in a year are taxable in the recipient’s hands as “Income from Other Sources”. Who are considered relatives?
– Spouse, parents, children, siblings, lineal ascendants/descendants, etc.

So, if you gift to your spouse or child, there is no gift tax. Refer my earlier post on this “Income Tax on Gift in India – Rules and tips to save tax“.

2. Capital Gains Tax – Who Pays and When?
When the recipient sells the mutual fund units later, capital gains tax will apply. The cost and holding period of the donor (you) will be considered for tax calculation.

Example:
– You bought a mutual fund in 2020, gifted it to your spouse in 2024.
– They sell it in 2026.
– For tax purposes, the investment is considered from 2020, and capital gains will be long-term or short-term accordingly.

3. Clubbing of Income – Section 64
This is extremely important and often overlooked.

If you gift mutual funds to:
– Your spouse, or
– Your minor child (not a disabled child),

Then any income or capital gains generated from that investment is clubbed with your income.

You gift Rs.1 lakh in mutual funds to your wife. She redeems it later with a gain of Rs.10,000. This Rs.10,000 gain will be taxed in your hands, not hers.

Exception:
– Clubbing does not apply if gifted to:
  – Adult children
  – Parents
  – Siblings
  – Disabled minor child
  – Other relatives (as long as not spouse/minor)

Takeaway: Gifting is tax-free, but income arising from it may come back to you under clubbing provisions. So plan accordingly.

Summary: Can Mutual Funds Be Gifted?

Method	Allowed?	Tax Implications	Notes

Direct Investment in Recipient’s Name

Yes

May invoke clubbing if spouse/minor

Most recommended

Demat Transfer (Off-Market)

Yes

Clubbing applies if spouse/minor

For existing units in demat

Gift Deed (Physical Mode)

No

N/A

Not accepted by AMCs

Will

Yes

Tax applies after transmission

For inheritance only

Online Platform Gifting

Yes

Treated as direct investment

Easy for beginners

Final Thoughts

Mutual fund gifting in India is legally allowed, but comes with conditions:

• Gift mutual funds through direct investment or demat transfer.
• Don’t rely on a Gift Deed to change ownership—it won’t work.
• For legacy planning, always draft a Will and align it with your nominations.
• Understand clubbing rules before gifting to your spouse or minor children, or you may end up paying tax on their gains.

As SEBI-registered financial planners, we often advise clients to gift mindfully—not just for tax-saving, but for long-term wealth-building within the family.

In my five-year Rich Habits Study I discovered four ways the self-made millionaires in my study accumulated their wealth:

1. Saver-Investor Path
2. Big Company Climber Path
3. Virtuoso Path
4. Dreamer-Entrepreneur Path

The Saver-Investor-Millionaires in my study forged three important habits, which enabled them to accumulate an average of $3,260,000:

• Habit #1 Frugal Spending – Frugal does not mean being cheap with your money. Frugal means spending your money on the lowest price, highest quality product or service available.
• Habit #2 Saving 20% or More of Your Income – This requires that you maintain a standard of living that allows you to live off of 80% of your net pay.
• Habit #3 Bucket System for Savings – Identifying specific savings priorities and devoting a percentage of your savings to each bucket: Wedding, First Home, Emergency Fund, College Savings, Investments, Retirement, etc.

In my book, Effort-Less Wealth – Smart Money Habits At Every Stage of Your Life, I share the 23 Smart Money Habits of the Saver-Investor millionaires in my study. These habits guarantee financial independence and wealth.

The Saver-Investors in my study used these smart money habits, which helped them put financial success on autopilot. Because they followed these habits diligently, they were able to automatically build wealth over many years. Over those many years, their investments appreciated, dividend income accrued and interest income on their investments accumulated automatically.

Individuals who follow these three smart money habits are able to grow their wealth, even when they are asleep – which happened to be a common goal among all of the millionaires in my Rich Habits Study.

Conversely, those who live beyond their means wind up accumulating debt. The interest on that debt also happens to grow, while they are sleeping.

Every time they wake up, they are eight hours poorer.

If you want to build wealth the easiest, most certain way possible, the Saver-Investor Path is the way to go. It doesn’t require any advanced degrees. It doesn’t require that you take enormous risks. And it doesn’t require that you work oppressive work hours, which negatively impacts your family and friends.

For would-be Saver-Investor millionaires, accumulating wealth requires that you make a habit of making “saving” the first “bill” you pay with every paycheck and then learning to live off of what’s left of your paycheck. When you make a decision to save first, this forces you to reduce your cost of living, so that you are able to reach your goal of saving 20% or more of your net pay. This allows you to put your savings to work by prudently and consistently investing those savings, so your savings can grow – even while you sleep!

Do you have an old health savings account (HSA) that is just gathering dust? Understanding the HSA rollover rules can help you make the mont of that account.

While you’ll never lose an old HSA, even when you leave a previous employer, leaving your account untouched isn’t the best idea. Taking advantage of an HSA rollover can put you back in charge of your money. Let’s explore the HSA rollover rules and guidelines.

What Is an HSA?

A health savings account (HSA) is a tax-advantaged savings account that you can use to pay medical expenses that your health insurance doesn’t cover.

Usually, an HSA is set up by an employer. You can contribute pre-tax income to the account and withdraw it as needed to pay for doctor visits, dental services, and more.

To open an HSA you will need to have a high-deductible health plan (HDHP). The IRS sets strict guidelines on how much you can contribute to the HSA and what you can use the funds for.

What Are the Benefits of an HSA

Tax-free status is one of the biggest benefits to HSAs. You can contribute pre-tax dollars to the account and take distributions for qualifying expenses without ever paying income tax.

Plus, funds in the account can be invested and grow tax-free, and the funds never expire.

Even if you lose your employment or HDHP insurance, you get to keep your HSA account. At the age of 65, you can take distributions with no penalty.

👉 Learn more: Unravel the complexities of the tax system and understand how do taxes work for individuals with our straightforward explanation.

What Is Covered By an HSA?

HSA funds can be used for a wide variety of health-related services, including services that insurance may not traditionally cover, such as:

• Infertility treatments
• Acupuncture
• Hearing aids
• Dentures
• Childbirth classes
• First aid kits
• Acne treatment

For the complete list of expenses covered (and those not covered), see the IRS’s 2022 Medical and Dental Expenses publication.

🏥 Learn more: Discover how to secure health insurance while self-employed with our step-by-step guide tailored for freelancers and entrepreneurs.

Basic HSA Rollover Rules

A HSA rollover occurs when you move funds from an old HSA into a new one. If you want to roll over your existing HSA funds into a different HSA, there are two important HSA rollover rules to remember.

1. You can complete an HSA rollover only once every 12 months
2. You have 60 days from disbursement to deposit funds into an HSA

If you violate rule 2 above, you’ll be hit with a 20% early HSA withdrawal penalty, and the money will be considered income.

It’s also worth noting what is not required when completing an HSA rollover.

• You do not have to be currently covered under an HDHP
• You do not need to be currently eligible to make HSA contributions
• Rollovers do not count towards yearly contribution limits
• Rollovers do not count as income

The IRS sets the above rules and regulations. Individual HSA providers may have their own HSA rollover rules.

How Does an HSA Rollover Work?

Completing an HSA rollover is straightforward, but you will have to complete a few steps.

Keep in mind that HSA funds won’t be available for you to use during the rollover process.

HSA Rollover Rules Versus Transfer Rules

One alternative to an HSA rollover is an HSA transfer. Transferring funds from one HSA to another often has fewer limitations than a rollover. Here are some key differences.

HSA Rollover	HSA Transfer
Funds are issued directly to you	Funds are transferred between providers
Allowed 1 rollover per 12 months	No limitations on the frequency
Usually requires the old account to be emptied and closed out	Partial transfers are possible
Fee-free	Sometimes comes with a fee
Potential tax penalties if you exceed 60 days	It can take several days to several weeks to complete
Can take several days to several weeks to complete	Often processes quicker than a rollover

On paper, an HSA transfer is preferable, especially if you have multiple HSAs that you are looking to consolidate. However, some providers don’t allow transfers, and others charge fees for transfers, which can make a rollover the better option.

Should I Roll Over My HSA?

Account balance is a major factor. If your old HSA balance is low, it might be easier to simply spend the funds.

Account fees are another important consideration. If your old account charges hefty fees, then a rollover makes sense. But if your new account has higher fees, leaving the old account intact might be the better choice.

One more point of consideration is account options, specifically investment options. Different providers offer different investments and have different thresholds and limitations for investing. If you are getting good returns with your old HSA, you might want to keep the funds there.

Finally, you’ll want to evaluate the timing of the rollover. If you have an upcoming need for medical services, you may want to postpone your rollover. Or if you have multiple HSAs you wish to consolidate, the once-a-year limit may mean postponing some of your rollovers.

Just remember, if you do proceed with a rollover, you need to follow all the HSA rollover rules to avoid costly penalties.

FAQs