HSA - Date of closing

Health Savings Accounts are completely foreign to me and I was asked a question I have no idea how to answer. Are there any legal or operational reasons to provide/not provide a longer grace period for an HSA with a zero balance to close? I couldn't find anything in our state's code or IRS guidance, and I can't think of any regulations that would cover this sort of thing. All help appreciated!

Specifically, we have our accounts to auto-close when the balance is 0.00 after 10 days, we would like to make that longer.

Considering these accounts are designed to receive an annual contribution and then be drawn down to a zero balance annually, I would suggest referring to your custodial agreement.

If you reserved the right to terminate the account under any conditions, it should be included in Article XI of your custodial agreement.

https://www.irs.gov/pub/irs-access/f5305c_accessible.pdf

It's my understanding that closure of an HSA by the bank can be done once the account is inactive by your banks Inactive/Dormant process, but after April 15 of the following year as an HSA can be funded by April 15 for the previous year.

Sometimes I don't know what I would do without these forums. Thank you both so much!!

I would again suggest reviewing your custodial agreement. Without reserving the right to terminate the account in the agreement, what allows you to terminate? These are not standard deposit accounts that the bank has free reign to close at their discretion. You have a fiduciary duty to the customer to abide by the custodial agreement. If you don't reserve the right to terminate in the contract, your first stop should be your legal counsel.

We researched charging fees on HSAs and have found that there is no restriction for charging. We are going to enact a monthly fee for accounts below a certain amount. With that in mind, can the fee close the account? Example: The balance in the account is $1.48 and the monthly fee is $2.00, if we charge the fee (in this case only $1.48), can the account close or do we have to retain it at a zero balance for a period of time? I will look at our custodial agreement. Thank you.