Here's What Happens When You Let Your HSA Funds Sit Too Long

Healthcare can be a huge expense at any age, so it's a good idea to set aside money for it. And in this regard, you have options. You could simply put more money into a regular savings account and earmark those funds for medical bills. Or you could enjoy some tax breaks in the course of saving for healthcare by funding a flexible spending account (FSA) or health savings account (HSA).

Both of these accounts let you set aside tax-free money for medical expenses. But despite the name, flexible spending accounts aren't actually so flexible. That's because they require you to spend down your balance each year or risk forfeiting funds.

HSAs, on the other hand, give you a lot more leeway. With an HSA, you do not have to deplete your plan balance by the end of the year. HSAs allow you to invest unused funds and carry your money forward.

In fact, you'll often hear that it's a good idea to leave your HSA untapped as long as possible and reserve that money for retirement. At that stage of life, you might end up spending more money on medical care because health issues tend to arise with age.

But while it's a good idea to actively contribute to your HSA, invest your funds, and carry your balance forward into retirement, you don't want to simply ignore an existing HSA. Doing so could put you at risk of losing your money.

Your HSA shouldn't just sit dormant

Of the more than 20 million Americans who have an HSA, at least 24% leave their accounts inactive, says research firm Devenir. This means they don't access their accounts, add money to them, or take withdrawals. Rather, those accounts just sit there.

It's when your HSA is inactive for too long that you could get into trouble. At that point, the bank holding your HSA could technically seek to turn your balance over to the state as unclaimed funds.

Rest assured that this won't happen before you're issued a warning. The bank holding your HSA will need to contact you (usually by mail), inform you that your account has been inactive for too long, and give you some options. But if you ignore that letter or never receive it, then your HSA balance could be turned over to the state.

How to avoid losing out on HSA funds

The last thing you want is to risk losing out on the money you've socked away in an HSA. If you make a point to keep contributing to your account, however, then that alone should be enough to keep it active.

So let's say your goal is to reserve all of your HSA funds for retirement, and you're only in your 40s. If you make an HSA contribution every year, that should do the trick in keeping your account active. Making investment changes in your account might do the same.

If you have an old HSA you know you haven't put money into for quite some time and you don't plan to make a contribution or withdrawal anytime soon, then it could pay to contact the bank holding your HSA and confirm that you wish to keep your account active. At that point, your bank should be able to tell you what steps, if any, you need to take to make sure you don't end up forfeiting any funds.