Dr. Piggy

Dr. Piggy

Need to fund your HSA (Health Savings Account)?  It’s a good idea.  And now, the IRS lets you make a one-time contribution to begin this funding from your Regular IRA or your Roth IRA.

Normally, if you’re pulling dough out of your IRA, it’s because you “need” a Lexus, and you’ll get hit with a 10% penalty for that.  But pulling money out of your IRA to fund your HSA is S.W.A. (Some What Amazing) because you won’t get slapped with that yucky penalty.  Pretty cool.

When going through with this, keep these points in mind:

  1. It’s supposedly a one-time life transfer (but you might be able to get around this if you have an HSA when you were single earlier in the year, then get married and go get an HSA for the family toward the end of the year).
  2. You can’t transfer more than the law allows you to contribute to your HSA in any one year, which is $5,800 for families and $2,900 for the single folk.
  3. The amount you transfer comes out of the deductible contributions made to the IRA first, if it’s a deductible IRA.  That means the transfer is not going to lower the earned monies in the IRA, and that future payouts from your IRA will be tax-free.
  4. The transfers have to come from a Regular IRA or Roth IRA, nothing else.
  5. There are some examples of how this works at the end of the IRS’s wonderfully clear write-up on the matter here.

Make sure you tell your friends that “the pro-rata basis recovery rules under § 72, for purposes of determining the basis in any amount remaining in an IRA or Roth IRA following a qualified HSA funding distribution, the qualified HSA funding distribution is treated as included in gross income to the extent that such amount does not exceed the aggregate amount which would have been so included if there were a total distribution from the IRA or Roth IRA owner’s accounts.”  (I couldn’t make this stuff up).

Your so-called friends will beat you up, but you’ll sound smart.

IRS Circular 230 Disclosure: To ensure compliance with requirements imposed by the IRS, we inform you that (i) any U.S. tax advice contained in this communication (including any attachments) is not intended or written to be used, and cannot be used, for the purpose of avoiding penalties under the Internal Revenue Code; (ii) any such tax advice is written in connection with the promotion or marketing of the matters addressed; and (iii) if you are not the original addressee of this communication, you should seek advice based on your particular circumstances from an independent advisor.