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Last month, my girlfriend got a new job with good health insurance and an FSA account. She has an HSA account from her previous job and the custodian is dinging her with monthly fees because she's below their minimum balance to waive the fees. We'd like to get away from these fees, but I'm having a hard time understanding what the rules are. So I have a few questions:

  1. Can she open an HSA account with another bank and transfer her funds there? I'm a bit confused on this, because the rules say she can't open an HSA because she has an FSA (and no HDHP), but since she already has an HSA it seems she ought to be able to transfer it to another bank. We'd like to move this money to a bank which will allow the money to be invested in a mutual fund.

  2. She was working at her old job for most of the year, and made some contributions to her HSA but I don't believe she is near the limit. Can she make an additional contribution to her HSA to reach the limit before year end, even though she now has an FSA?

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Can she open an HSA account with another bank and transfer her funds there?

Yes, you should be able to transfer it.

Can she make an additional contribution to her HSA to reach the limit before year end, even though she now has an FSA?

No, you have to actively have an HDHP to open or contribute to an HSA.

You might as well just spend the money and avoid the extra charges. It's not doing any good just sitting in an account.

  • Well, what we really want to do is move the money to a bank which doesn't have an investment threshold and let it sit in a mutual fund for a few years while she's at the current job. – Erik Nov 14 '18 at 22:18
  • If you can find that - sure. Typically HSAs have a minimum threshold for investments. – D Stanley Nov 14 '18 at 22:21
  • The last sentence is wrong - is does a lot of good; it is a tax-free investment. Any gains are tax free, as you can always use it for medical expenses when your old. – Aganju Nov 15 '18 at 3:16
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    @Aganju But the money is already in the account pre-tax, so the only tax benefit is on the gain, which as noted is probably zero since the account isn't big enough to be invested. – D Stanley Nov 15 '18 at 3:20
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  1. Can she open an HSA account with another bank and transfer her funds there?

Yes, you can roll your HSA funds into a new HSA account. You should be able to find an HSA account with no fees. I suggest talking to your local credit union.

  1. Can she make an additional contribution to her HSA to reach the limit before year end, even though she now has an FSA?

If she was eligible to contribute earlier this year, than she can contribute for tax year 2018, even if she is no longer eligible. However, her contribution limit is not the entire normal amount, but it is prorated based on the number of months she was eligible for the HSA. See What is the HSA contribution limit when you are only enrolled in HDHP for part of the year? for details on how to calculate your prorated contribution limit. Remember that your contribution limit applies to both the amounts that your wife and your wife's employer contributed. You may find that your wife and her employer have already contributed more this year than you were allowed; if so, you'll need to remove that using an excess contribution withdrawal.

As D Stanley mentioned in a comment, if you don't have enough in the account to avoid fees, you probably don't have enough to meet a minimum needed to invest your HSA funds. Remember that you can spend that HSA money on lots of things: Dental, Eyeglasses, Chiropractic, Prescriptions, etc. See IRS Publication 502 for a list of all the eligible medical expenses.

I'd recommend rolling the funds over to a no-fee HSA, and then spending the money on qualified medical expenses until it is gone.

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