What is a rollover as it pertains to HSAs?

A rollover in the context of Health Savings Accounts (HSAs) specifically refers to a tax-free distribution of assets that is reinvested in another HSA. This process allows individuals to transfer funds from one HSA to another without incurring any tax penalties, as long as the transfer follows the guidelines set by the IRS.

When someone rolls over funds, they must complete the transfer within 60 days to maintain its tax-free status, ensuring that the funds are not considered taxable income. This mechanism is particularly beneficial for those who might want to switch banks or investment options, thereby providing flexibility in managing their healthcare savings.

The other options do not accurately capture the essence of what a rollover entails. A transfer of assets between two HSAs can occur, but it doesn't specifically convey the nature of a tax-free distribution. A penalty for early withdrawal is unrelated to HSAs and pertains more to retirement accounts, while a tax deduction for health expenses involves deductibility rather than the transfer or rollover of funds. Thus, the correct understanding of a rollover is central to maximizing the benefits of HSAs.