Author Topic: Interesting. IRA -> HSA transfer  (Read 2491 times)

TomTX

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Interesting. IRA -> HSA transfer
« on: October 08, 2014, 10:08:59 AM »
So, I was reading IRS Publication 590 and came across an interesting tidbit.

Apparently you can do a 1 time transfer from an IRA to HSA without tax consequences.  For those with both, it looks like an opportunity to get even more money to the 'never taxed' status in an HSA.
Many restrictions do apply.

http://www.irs.gov/publications/p590/ch01.html#en_US_2013_publink1000230701

More info is in Publication 969.

http://www.irs.gov/uac/Publication-969,-Health-Savings-Accounts-and-Other-Tax-Favored-Health-Plans

seattlecyclone

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Re: Interesting. IRA -> HSA transfer
« Reply #1 on: October 08, 2014, 10:37:46 AM »
The maximum amount you can transfer is the same as your maximum contribution for the year, and the transfer counts toward your contribution limit. So if you have a year where you can't max out your HSA from savings or earnings for some reason, you might as well do this. Otherwise there's nothing to see here.

Left

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Re: Interesting. IRA -> HSA transfer
« Reply #2 on: October 08, 2014, 10:39:03 AM »
outside of paying for healthcare what benefits are there to doing this? From what I understand, you still get the hit by the under 65 tax penalty for nonmedical payments. You can't pipeline it to get it out in 5 years either

Wouldn't HSA to IRA be preferable? If that was allowed?

mxt0133

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Re: Interesting. IRA -> HSA transfer
« Reply #3 on: October 08, 2014, 11:12:00 AM »
outside of paying for healthcare what benefits are there to doing this? From what I understand, you still get the hit by the under 65 tax penalty for nonmedical payments. You can't pipeline it to get it out in 5 years either

Wouldn't HSA to IRA be preferable? If that was allowed?

The basic idea of why contributing to an HSA over an IRA are, it is excluded from FICA taxes (if you happen to not exceed the maximum income limit), you let your HSA grow tax free, you pay any medical expenses out of pocket and keep detailed records.  You let your HSA keep growing tax free and the money keeps growing instead of making distributions to pay medical expenses.  Then you claim the medical expenses in the future allowing your HSA funds to double, triple, whatever.  At the age of 65 you can then take money out for any reason and not pay any capital gains tax.

seattlecyclone

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Re: Interesting. IRA -> HSA transfer
« Reply #4 on: October 08, 2014, 11:16:26 AM »
You only avoid FICA if the money comes out of your paycheck. The IRA transfer discussed here doesn't achieve this. The main benefit to doing this transfer would be tax-free withdrawals in the future (presuming your medical bills exceed your HSA balance over your lifetime).

TomTX

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Re: Interesting. IRA -> HSA transfer
« Reply #5 on: October 08, 2014, 11:56:04 AM »
Certainly looks useful as an early retiree if I can no longer contribute to an HSA and need to pay for medical expenses beyond what is in the HSA. It is a route to getting some money out of a tIRA tax free. Admittedly not a lot. A couple could get out a max of $13, 100 across 2 years if I read it correctly by each transferring the max in separate years.  With a 15% marginal tax rate,  that saves $1, 965 in taxes and leaves space for other purposes,  like the Roth pipeline.

Over 50 and the limit is raised $1000 each
« Last Edit: October 08, 2014, 11:59:10 AM by TomTX »