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One Time Rollover from IRA to HSA . . .

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    One Time Rollover from IRA to HSA . . .

    Can anyone tell me why the IRS would make this a "one time" opportunity and also is it a better move than just taking the HSA contribution deduction? What am I not seeing?

    It also says from A Traditional IRA, my guess is qualified annuity money would not work. . .

    Thanks

    #2
    Originally posted by Sparky View Post
    Can anyone tell me why the IRS would make this a "one time" opportunity and also is it a better move than just taking the HSA contribution deduction? What am I not seeing?

    It also says from A Traditional IRA, my guess is qualified annuity money would not work. . .

    Thanks
    I believe it's geared more towards those that don't have the liquid funds to put into an HSA but have money in IRAs. For someone that does have the cash available, there may be situations where it's better to convert and then use the cash to fund a Roth rather than a HSA.

    Comment


      #3
      Originally posted by Sparky View Post
      Can anyone tell me why the IRS would make this a "one time" opportunity
      No, because the IRS didn't do it, Congress did.

      The real question is, why did they even allow a one-time opportunity? If they wanted to allow tax free IRA withdrawals for medical expenses, they could have just done that, without creating the HSA.

      Comment


        #4
        I used it as a way to move money out of a small IRA account that I want to close. I have to move the money anyway, so I just moved it this year to the HSA.

        Comment


          #5
          NOT a better move than just taking the HSA contribution deduction

          Originally posted by Sparky View Post
          Can anyone tell me why the IRS would make this a "one time" opportunity and also is it a better move than just taking the HSA contribution deduction? What am I not seeing?

          Thanks
          To my view, this would only be beneficial in only an extremely limited number of circumstances. The drawbacks are legion: you must remain in the HSA for at least 12 months after the transfer or face a 10% penalty, you do not get a tax deduction for the rollover amount as you would for a normal contribution, it raises your AGI, and you still have to be eligible for an HSA in the first place. As Cathy said, it's probably only useful to those who have no other funds to contribute to an HSA but do have some IRA money.

          Comment


            #6
            Originally posted by mbigelow View Post
            The drawbacks are legion: you must remain in the HSA for at least 12 months after the transfer or face a 10% penalty, you do not get a tax deduction for the rollover amount as you would for a normal contribution, it raises your AGI,
            The 12 month testing period also applies to regular contributions made under the last month rule, so what's the big deal. You already got the tax deduction when you made the IRA contribution, so what's the big deal. And please explain EXACTLY how an HSA funding distribution increases the AGI?

            Seems hard to believe that there are DRAWBACKS to making an HSA funding distribution from an IRA. Absence of double-dipping benefits is not the same as a drawback.

            Comment


              #7
              Originally posted by Rapid Robert View Post
              The 12 month testing period also applies to regular contributions made under the last month rule, so what's the big deal. You already got the tax deduction when you made the IRA contribution, so what's the big deal. And please explain EXACTLY how an HSA funding distribution increases the AGI?

              Seems hard to believe that there are DRAWBACKS to making an HSA funding distribution from an IRA. Absence of double-dipping benefits is not the same as a drawback.
              The IRA distribution would increase AGI. Yes, you already got a tax deduction when you made the IRA contribution, but why not get another deduction for making an HSA contribution from another source? The 12-month testing period ONLY applies under the last month rule, so why provoke it if not necessary?

              Comment


                #8
                Originally posted by mbigelow View Post
                The IRA distribution would increase AGI.
                I think you're wrong about that. If it's a trustee to trustee transfer, I don't think it would even show up on page 1 of Form 1040, or at worst it would be a 1099-R code G rollover (not taxable). Or, even if it was a taxable distribution, then you would get the offsetting HSA deducton for your contribution.

                Comment


                  #9
                  Originally posted by Rapid Robert View Post
                  I think you're wrong about that. If it's a trustee to trustee transfer, I don't think it would even show up on page 1 of Form 1040, or at worst it would be a 1099-R code G rollover (not taxable). Or, even if it was a taxable distribution, then you would get the offsetting HSA deducton for your contribution.
                  That makes sense and I concur. But why not just make a normal HSA contribution and take the deduction if other funds are available? Again, as Kathy said, it only seems to make sense if no other monies are available to fund the HSA.

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