When and how to close your HSA

You can close an HSA at any time, but the timing and method depend on whether you still have a high-deductible health plan (HDHP) and what you plan to do with the money inside. If you close the account while you are still enrolled in an HDHP, the IRS will tax any non-medical withdrawals you make and charge a 20% penalty on top. If you close it after you leave your HDHP — for example, by switching to a standard health plan — you can withdraw the money tax-free as long as you use it for medical expenses, but non-medical withdrawals will be taxed as regular income (no penalty). The actual process is straightforward: contact your HSA provider, request account closure, decide what to do with the balance, and complete any required paperwork.

Most HSA providers let you close online, by phone, or by mail. Some require you to withdraw or transfer the full balance before closing; others close the account and mail you a check. The timeline varies — some providers close within days, others take two to four weeks. If your employer manages your HSA through payroll, you may need to notify your HR department first, since they control contributions and may need to update their records.

Key Takeaways

  • You can close an HSA anytime, but non-medical withdrawals are taxed and penalized if you still have an HDHP, and only taxed (no penalty) if you have left your HDHP.
  • Contact your HSA provider directly by phone, online portal, or mail to request closure and learn their specific process for handling your balance.
  • You can withdraw the money, transfer it to another HSA, or leave it invested — the account does not expire just because you close it with the provider.
  • If your employer manages contributions through payroll, notify HR before closing so they stop deducting from your paycheck.
  • Keep all HSA records and receipts for medical expenses, because the IRS can audit HSA withdrawals years after you close the account.

What happens to the money when you close

The balance in your HSA is yours to keep — closing the account does not forfeit it. You have three main options: withdraw the money as a lump sum, transfer it to another HSA (usually at a different bank or provider), or leave it where it is if the provider allows inactive accounts.

If you withdraw the money, the tax treatment depends on your health plan status. Money you withdraw and use for may have access to medical expenses — doctor visits, prescriptions, dental work, vision care, mental health treatment, and many other health costs — is never taxed, regardless of when you withdraw it or whether you still have an HDHP. Money you withdraw for non-medical reasons is taxed as ordinary income. If you still have an HDHP when you make the non-medical withdrawal, you also owe a 20% penalty. If you have already left your HDHP, you owe only the income tax, no penalty.

Transferring to another HSA (called a trustee-to-trustee transfer) moves the full balance to a new provider without triggering taxes or penalties. This is useful if you want to keep the account open but switch to a provider with lower fees or better investment options. The transfer usually takes one to two weeks.

Steps to close your account

Start by contacting your HSA provider. Look for the customer service number on your HSA card, your most recent statement, or the provider's website. Tell them you want to close your account and ask what documents or information they need.

Most providers will ask you to choose what to do with the balance: withdraw it, transfer it, or in some cases leave it open as an inactive account. If you choose to withdraw, they will typically mail you a check or deposit it to your linked bank account within five to ten business days. If you choose to transfer, you will need the name and routing number of the receiving HSA provider, and the transfer usually completes within one to two weeks.

After the balance is handled, the provider will close the account and send you a final statement. Keep this statement and all HSA records for at least seven years — the IRS can audit HSA withdrawals long after you close the account, and you will need to prove that withdrawals were for medical expenses.

Notifying your employer if they manage the account

If your employer deducts HSA contributions directly from your paycheck, closing the account with your provider is not enough. You also need to tell your HR or benefits department that you want to stop contributions.

Contact HR and let them know you are closing your HSA. They will update your payroll records so contributions stop in the next pay period. If you do not notify them, they may continue deducting money from your paycheck and depositing it into an account you have already closed, which creates confusion and delays in getting your money back.

Some employers offer a grace period or run-out period after you close the account — they may allow you to continue using HSA funds for medical expenses incurred during that year, even though you are no longer contributing. Ask HR whether this applies to you.

Tax reporting after closure

When you close your HSA, the provider sends you a Form 5498-SA (or similar tax document, depending on the provider) showing the total contributions and distributions for the year. Keep this with your tax records.

If you made any non-medical withdrawals, you will need to report them on your tax return. The amount withdrawn is added to your taxable income. If you still had an HDHP when you withdrew it, you also report the 20% penalty on Form 8889 (Health Savings Accounts). If you are unsure whether a withdrawal counts as medical or non-medical, consult a tax professional — the rules are specific, and mistakes can trigger an audit.

Medical expenses do not need to be reported on your tax return when you withdraw them from an HSA, but you should keep receipts and documentation anyway. The IRS can ask for proof years later that withdrawals were legitimate medical expenses.

Reopening an HSA after closure

If you close your HSA and later decide you want one again, you can open a new account with the same provider or a different one. There is no limit on how many times you can open and close an HSA, as long as you remain enrolled in an HDHP when you contribute.

However, there is an annual contribution limit — for 2024, it is $4,150 for individual coverage and $8,300 for family coverage (these amounts change yearly). If you close your account mid-year and then reopen it, your total contributions for that year across all accounts cannot exceed the annual limit. For example, if you contributed $2,000 before closing and then open a new account later in the year, you can contribute only $2,150 more (assuming individual coverage) without exceeding the limit.

Frequently Asked Questions

Do I lose the money if I close my HSA?

No. The balance is yours. You can withdraw it, transfer it to another HSA, or in some cases leave it in an inactive account. The money does not disappear when you close the account with the provider.

Can I close my HSA if I still have an HDHP?

Yes, you can close it anytime. But if you withdraw money for non-medical reasons while still enrolled in an HDHP, you will owe income tax plus a 20% penalty. Once you switch to a different health plan, the penalty goes away — you will owe only income tax on non-medical withdrawals.

What if my employer manages my HSA and I want to close it?

Contact your HR or benefits department and tell them to stop contributions. Then contact your HSA provider to close the account or transfer the balance. If you only tell HR and not the provider, your account stays open and may continue to receive deposits.

How long does it take to close an HSA?

It depends on the provider and what you do with the balance. Closing the account itself usually takes a few days to two weeks. Withdrawals typically arrive within five to ten business days. Transfers to another HSA usually take one to two weeks.

Can I use my HSA for medical expenses after I close the account?

Only if you withdraw the money first. Once the account is closed, you cannot make new withdrawals from it. But you can withdraw the balance and use it for medical expenses incurred before or after closure — there is no time limit on when you use the money, as long as the expense is may have access to.