What happens to your HSA if you are laid off?

Your Health Savings Account (HSA) is a personal account that belongs entirely to you, the employee, even if it was established through your employer. If you are laid off, your HSA does not disappear; it remains yours, along with all the money accumulated in it.

Your HSA is Portable

Unlike some employer-sponsored benefits that cease upon termination, your HSA is inherently portable. This means:

• Continued Ownership: The HSA remains your property. It's not tied to your employment status.
• Funds Remain Accessible: All funds in your HSA, including contributions from previous employers and any investment earnings, stay in your account.
• Unrestricted Use for Qualified Expenses: You are free to continue using the money in your HSA for qualified medical expenses, even if you no longer have an employer-sponsored health plan or are no longer enrolled in a High-Deductible Health Plan (HDHP).
• Option to Transfer: You have the flexibility to move your HSA funds to a different HSA custodian if you wish. This can be beneficial if you find another institution offering better investment options or lower fees.

Key Considerations After a Layoff

While your HSA itself is unaffected, your ability to contribute to it may change, as HSAs require enrollment in a High-Deductible Health Plan (HDHP). However, this doesn't impact your existing funds.

Here’s what you should know:

• Accessing Funds:
  • You can use your HSA funds tax-free for a wide range of qualified medical expenses, including deductibles, copayments, prescriptions, dental care, and vision care. For a comprehensive list, you can refer to IRS Publication 502, Medical and Dental Expenses, available on the IRS website.
  • Many HSAs offer a debit card or checkbook for easy access to funds.
• Future Contributions:
  • To contribute new money to an HSA, you must be enrolled in an HDHP. If your layoff means you lose your HDHP coverage and do not immediately enroll in another qualifying HDHP (e.g., through COBRA or a new employer's plan), you will temporarily lose eligibility to make new contributions.
  • However, any funds already in your HSA can continue to grow tax-free and be used for qualified medical expenses regardless of your current health plan status.
• Managing Your Account:
  • Your existing HSA custodian will continue to manage your account. You'll receive statements and have access to your funds as usual.
  • Review your account fees and investment options. If your current custodian charges high fees or offers limited investment choices, consider initiating an HSA transfer or rollover to a new provider. Many financial institutions offer competitive HSA products; sources like Investopedia or NerdWallet can provide helpful comparisons.

Summary of What Happens

In essence, your HSA is a valuable personal asset that provides long-term financial security for healthcare costs, regardless of your employment situation.