IRA Distribution & Partial Rollover to IRA & HSA

[Absolut]

I have a client (MFJ) who cashed in a IRA for $6,958.42 (which has a code of 1 on the 1099R), rolled $3,000.00 of it into another bank, and $1,500.00 into a HSA account at the new bank, the rest they kept.
He makes $17,000.00 a year and wife made $13,780.00 and is now Self employed.

The TP had also contributed $100.00 into the IRA before they took it out, and than they've contributed $100.00 into the new one. I've reported both contributions on the worksheet, but I also reported $100.00 came out when the TP cashed the $6,958.42 in, is this correct?
TP also contributed $1,845.00 to the HSA for 2006.

My question is how to report the Rollerover of $3,000.00 and the HSA Contribution of $1,500.00 from the distribution, I use Proseries for taxes?

What I have done:
#1. I enterd the 1099R using #1 as the code, but also entered $3,000.00 where it asks if there was a partial rollover. (I believe this is correct)

#2. HSA - I haven't had one to do yet, so I'm not for sure quite how to report this, and what I need for information from my client?

Any help would be appreciated. Should you need anymore info just let me know. Thank you for your answers.

Sincerely,
Debbie

[Matt Sova]

Rollover IRA

3958.42 is included in income - the total distribution less the 3000 rollover to a new IRA. If that rollover was made within the 60 days.

I cannot find any provision for rolling an IRA to an HSA as a tax and penalty free transaction. Actually it would be tax free because you are reporting the taxable withdrawl and then taking an adjustment for the HSA contribution. You will still pay a penalty on it though.

[Absolut]

Distribution & Partial Rollover to IRA & HSA

Thanks Matt for posting your reply. I had a feeling they would still have to pay the penalty. Does the HSA have to be provided by the employer?

[veritas]

One time rollover from an IRA to HSA

Beginning in 2007, a one-time tax free rollover from an IRA into an HSA is allowed. The rollover must be a direct trustee-to-trustee transfer. Amounts rolled over are not included in income and not subject to the 10% early withdrawal penalty to the extent the amount would otherwise be includible in income. Amounts rolled over from a traditional IRA to an HSA are treated as coming first from pre-tax amounts rather than after tax basis. The amount rolled over from the IRA to an HSA is limited to the otherwise maximum deductible contribution amount to the HSA computed on the basis of the type of coverage under the high deductible health plan at the time of the rollover. The limitation on other contributions to the HSA during the year are reduced by the amount rolled over from the IRA. The provision allows for only one rollover during the lifetime of the individual, except in the case where an individual with self-only coverage switches to family coverage in a subsequent month within the taxable year. The individual must remain an eligible individual after the rollover for 12 months, except in the case of death or disability. This provision does not apply to SEP IRAs or SIMPLE IRAs.

Sounds like in this case the taxpayer jumped the gun.