IRA to HSA Rollover

Health Savings Accounts (HSAs) are meant to go with health plans with high deductibles and help you pay for medical costs. Due to the triple tax benefit, they can also be a great way to save for retirement.

• You can get a tax break for what you give.
• The amount in your account grows without you paying taxes on it.
• Withdrawals for medical costs don’t have to be taxed.

After age 65, you can use the money for anything other than medical expenses, just like you can with a traditional IRA. You’ll pay taxes on the money at the same rate as your regular income, but you won’t be charged any extra fees.

We suggest that you put the maximum amount into your HSA each year until you sign up for Medicare and, if possible, make as few withdrawals as possible. If you do this, you could save $200,000 or more by the time you are 65, even if you start when you are 50.

There is a special, less-well-known rule that can help you fund your HSA: you can roll over money from your IRA to your HSA once in your life. This is called a qualified HSA funding distribution.

The amount you can roll over is limited to the most you can put into your HSA for the year. This adds up to $3,850 for an individual plan and $7,750 for a family plan in 2023. You can add a $1,000 “catch-up” contribution if you are 55 or older.

The amount you roll over doesn’t count as income, isn’t tax deductible, and cuts into how much you can put into your HSA for the year. The big benefit is that when you use this money for medical costs, you turn money that would have been taxed into money that isn’t taxed.

We know that taxes can be hard. Schedule your free tax consultation and find out more about how the ideas in the article can apply to your specific tax situation.

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