Can You Roll Over Money From Your IRA Into an HSA?
You are allowed a one-time transfer of money from an individual retirement account (IRA) into a health savings account (HSA). While people may call this a “rollover,” it technically isn’t. Instead, the Internal Revenue Service — and federal tax law — consider this a transfer.
Transfers are not taxable as IRA distributions and the amount you transfer to your HSA is not tax deductible.
The one-time transfer must be within contribution limits to a health savings account for the year you make the transfer. And you must be eligible for an HSA when you make the transfer.
Moving money from an IRA to an HSA can be complicated and costly if you do it incorrectly. Some plan administrators recommend talking to a financial professional before making any transfers or rollovers.
Rules for Moving Funds from an IRA to an HSA
The first rule to remember is that you can only make an IRA to HSA transfer once in a lifetime. And before you can make an IRA to HSA transfer, you must be eligible to contribute to a high deductible health plan — or HDHP. You do not qualify for an HSA unless you have an HDHP first.
You must also remain eligible for your HDHP for at least 12 months after the transfer. This is called a “testing period.” If you switch to a non-HDHP plan during the testing period, you’ll have to report the transfer as income — and pay income taxes on it. You’ll also have to pay a penalty equal to 10% of the money you transferred.
Limits for 2023 and 2024
You are limited in how much you can transfer into an HSA. Any transfer is counted as part of your annual contribution limit for an HSA. They are subject to change from year to year.
There are also limits on minimum deductibles and maximum out-of-pocket limits for qualifying plans.
HSA Contribution Limits, 2023 and 2024
| HSA Characteristics | 2023 | 2024 |
|---|---|---|
| Individual HSA | $3,850 | $4,150 |
| Family HSA | $7,750 | $8,300 |
| Additional HSA “Catch-Up” Contributions (55 and Older) | $1,000 | $1,000 |
| Minimum Deductible (Individual) | $1,500 | $1,600 |
| Minimum Deductible (Family) | $3,000 | $3,200 |
| Maximum Out-of-Pocket (Individual) | $7,500 | $8,050 |
| Maximum Out-of-Pocket (Family) | $15,000 | $16,100 |
How to Roll Over Money from an IRA to an HSA
You should contact your health savings account plan administrator to find out how to make an IRA to HSA transfer in your particular situation.
You must meet the requirements for HSA eligibility, make a contribution within limits and follow other rules set by the IRS.
Remember that you can only make one such transfer in your lifetime. IRA to HSA transfers can be complicated, so you should speak with a financial professional before making this type of transfer to make sure you won’t face costly tax consequences or stiff financial penalties.
Pros and Cons of Funding Your HSA With an IRA
Putting more money into an HSA can yield significant tax advantages, but an IRA to HSA transfer is limited to one per lifetime and making such a transfer can expose you to unnecessary taxes and penalties.
Pros and Cons of Funding an HSA with IRA Savings
Pros
- You can increase your HSA balance without using out-of-pocket cash.
- Typically, there are no taxes or penalties on the money you transfer.
- Money you transfer can be used at any time — tax free — to pay for any qualified medical expense.
Cons
- You can only make a one-time transfer.
- You will have to stay in a qualifying high deductible health plan (HDHP) for 12 months after the transfer or pay taxes and penalties on the transfer.
- You must pay taxes and penalties on any HSA payments for non-qualified medical expenses until you turn 65.
Alternatives for Funding an HSA
You cannot transfer money from a 401(k), 403(b), 457 or other types of retirement plans directly into an HSA. But there are ways you can use money from those accounts to accomplish the same goals.
There may also be other alternatives to fund your HSA that you should consider.
- 401(k), 403(b) and 457 plans
- These retirement plans are all employer sponsored and you cannot make a direct transfer from any 401(k), 403(b) or 457 plan into an IRA. But you can rollover any one of these plans from a former employer into an IRA, then make the IRA to HSA transfer. This can be tricky, and you should seek the help of a financial professional to assist with the rollover and transfer.
- Traditional vs. Roth IRA
- Transferring money from a traditional IRA is a better option than transferring a Roth IRA to fund an HSA. This is attributable mainly to traditional IRA contributions being afforded the same tax deductibility as HSA contributions. Roth IRAs are subject to different taxation, and transferring from a Roth IRA to an HSA entails much more complexity.
- IRA withdrawal
- If you’re 59 1/2 or older, you can withdraw money from your IRA and contribute it directly into your HSA. By doing this as a contribution rather than a transfer, you can do this more than once. You’ll have to pay taxes on the money you withdraw from a traditional IRA, but the tax break you get from contributing to the HSA should cancel out one another.
Alternatives for Funding an HSA
