What Is an HSA Custodian?
Let me explain to you what an HSA custodian is—it's any bank, credit union, insurance company, brokerage, or other financial institution approved by the Internal Revenue Service that provides health savings accounts, or HSAs.
These institutions, which you might also hear called HSA administrators, keep your HSA assets in a secure account. In some cases, you as the account holder can decide how to invest the money and pull it out for qualified medical expenses.
Key Takeaways
- An HSA custodian includes banks, credit unions, insurance companies, brokerages, or other approved organizations offering HSAs.
- They are sometimes referred to as HSA administrators.
- HSAs were created by the Medicare Prescription Drug, Improvement, and Modernization Act of 2003.
Opening an HSA Account
You can set up an HSA through your employer, where you might get automatically enrolled with a specific custodian but have the choice to switch— just check with your HR department first to see how that affects your payroll contributions.
If you're opening one on your own, you pick the custodian yourself. Your decision matters because it influences the interest you earn, the fees you pay, and the investment options, all of which can affect your HSA balance in the long run.
Like with any financial account, aim to keep fees low and returns high. Ensure your cash is FDIC-insured and any investments are SIPC-protected.
Remember, an HSA isn't the same as a flexible spending account, or FSA, which is employer-sponsored and lets you use pretax dollars for healthcare costs.
Fast Fact
You can't roll over an HSA into a 401(k) or an individual retirement account.
A Closer Look at HSA Custodians
HSAs came about through the Medicare Prescription Drug, Improvement, and Modernization Act of 2003 to give people with high-deductible health plans, or HDHPs, a tax-advantaged way to save for medical costs.
An HSA custodian enables you to add money to your HSA and take it out for medical bills when needed. It's like a savings account where the custodian pays interest on your cash balance. Some let you invest in stocks, bonds, or funds for better returns on money you won't need soon for healthcare.
Important Note
If you're handling HSA investments yourself, be sure you understand the fees, available investments, and the effort required to manage changes in your account.
The Cost of HSA Custodians
HSA custodians charge for their services, and the types and amounts of fees differ by institution. You might encounter basic ongoing costs like an annual administrative flat fee or a quarterly custodial fee based on a percentage of your balance.
There are also fees for errors, such as correcting excess contributions if you deposit more than the IRS limits—for 2022, that's $3,650 for single coverage or $7,300 for family, rising to $3,850 and $7,750 in 2023, with an extra $1,000 allowed if you're 55 or older.
Other charges could include issuing extra debit cards for family or replacing lost ones. They also have fees similar to checking accounts, like for insufficient funds, closing the account, or stopping payments.
Hypothetical Example of HSA Account Benefits
You can use an HSA to reduce your monthly premiums. For instance, if you have family coverage with a $2,000 deductible costing $800 monthly, switching to a $5,000 deductible might drop that to $500, saving you $300 a month or about $3,600 yearly.
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