Clark Howard’s Clear Eyed Advice About What to Do With an HSA After a Job Change

Margaret recently phoned into The Clark Howard Podcast, wondering what to do with the Health Savings Account (HSA) left behind at a former employer. The plan has high fees and few investment options.

“Move all that money that you have from the legacy employer HSA, move it all to Fidelity,” Howard said. “You want to do this without delay.” He also encouraged her to keep contributing even after losing the payroll tax break that she got when working for her former employer.

An HSA left to drift inside a high-fee employer custodian can quietly leak hundreds of dollars a year to administrative charges. Over a 20-year horizon, that could mean tens of thousands of dollars of forgone retirement medical money.

HSAs are portable by federal law. The account belongs to the employee, not the employer, and a trustee-to-trustee transfer to a different custodian is allowed at any time, regardless of employment status. Howard took issue with Margaret’s current account. “The employer-provided plan you’re in is one of the ones that has a lot of fees that are passed on to you,” he said. “They don’t have good low-cost investment options.”

Many employer-sponsored HSAs charge monthly maintenance fees, require an investment threshold (often $1,000 to $2,000 must stay in cash), and offer fund lineups dominated by high-expense actively managed options. A self-directed HSA at a low-cost custodian eliminates the maintenance costs and opens access to broad-market index funds with expense ratios under 0.1%.

Margaret’s accountant correctly told her she would lose the FICA payroll tax savings on contributions made outside an employer plan. Howard said that’s OK. “Even though you’re not going to get the triple tax benefit, you’re still going to get a wonderful double tax benefit in the HSA,” he said.

The triple tax benefit on a payroll-deducted HSA is: pre-tax contribution, tax-free growth, and tax-free withdrawal for qualified medical expenses. When you contribute outside payroll, you still deduct the contribution on your federal return (and most state returns), still get tax-free growth, and still get tax-free qualified withdrawals. What you lose is the roughly 8% FICA savings that only payroll deduction provides.

Howard offered another HSA tip. “Remember to keep your medical receipts all through the years, because if later in life you want to go back and do a tax-free withdrawal from the HSA, [it] doesn’t have to be withdrawn in the same year as the expense,” he said.

The IRS does not require HSA reimbursements to occur in the same tax year as the expense. Pay a $4,000 medical bill out of pocket today, save the receipt, let the HSA compound for 25 years, and you can pull $4,000 out tax-free decades later. The account effectively functions as a Roth IRA with no required minimum distributions, as long as you have a stack of unreimbursed receipts banked.

Howard’s advice works for Margaret. She has cash flow to keep contributing, she values the long-term tax shelter, and she is willing to enroll in a qualifying high-deductible plan through COBRA or the marketplace. The same playbook works for anyone with a six-figure income, an emergency fund already in place, and the ability to pay routine medical bills out of pocket.

But if you cannot afford the deductible on a qualifying plan, or if you would have to pull from the HSA to cover current medical costs, the receipt-stockpiling math collapses. A worker with thin savings is usually better served by a traditional PPO and a fully funded emergency reserve before chasing the HSA tax shelter.

Tips for reviewing HSAs

1. Log into your legacy HSA, pull the fee schedule and fund expense ratios, and compare them to a self-directed custodian’s published lineup.
2. Initiate a trustee-to-trustee transfer (not a 60-day rollover) to avoid the once-per-year rollover limit and any tax withholding.
3. Confirm your current health plan’s HSA eligibility. If you are between jobs, price a marketplace High Deductible Health Plan (HDHP) against COBRA before assuming COBRA is cheaper.
4. Start a digital folder for medical receipts: provider, date, amount, and proof of payment. That folder is a future tax-free withdrawal ticket.

The HSA is arguably the most powerful account in the U.S. tax code because of the double tax benefit, paired with the receipt strategy that turns today’s medical bills into tomorrow’s tax-free retirement income.