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IRA to HSA: The Benefits of a One-Time Transfer

Carla Fried · January 29, 2020 · 3 min read


If you have a health savings account (HSA) and a traditional Individual Retirement Account (IRA), you can take advantage of a nifty tax break. You are allowed a one-time opportunity to move money from a traditional IRA —where it will be eventually taxed—into an HSA where you can use the money tax free for qualified medical expenses.

Dodging the traditional retirement tax bill

Any money you have saved in a traditional IRA will be subject to income tax when you withdraw it in retirement. Regardless of whether you need to use the money or not, the Internal Revenue Service insists that you take annual distributions in retirement so it can collect the tax. Beginning in 2020, these required minimum distributions (RMDs) must start when you turn 72.

Money you save in an HSA today with the intention of using in retirement to cover qualified medical expenses will be tax-free.

A tax-smart move to consider is transferring money you currently have in a traditional IRA into an HSA. The IRS allows an individual to make this move once in their lifetime.

IRA to HSA One-Time Transfer Rules

  • The amount you can transfer is equal to the annual HSA contribution limit. In 2020 if you have a high deductible health insurance plan (HDHP) that covers just you, your HSA contribution limit is $3,550. If your HDHP is for your family, your contribution limit is $7,100. If you are at least 55 years old –or will turn 55 any time in the calendar you – you can make an additional $1,000 catch-up contribution.

  • There is no tax bill, or early withdrawal penalty when you transfer money from your traditional IRA into your HSA account.

  • To avoid a tax bill on an IRA-to-HSA transfer, you must continue to be enrolled in an HDHP for 12 months after the transfer.

Once the money is transferred from your traditional IRA to your HSA it can be used at any time to pay for qualified medical expenses. That can be next month’s copay for some tests, or it can be for health care costs decades from now. That’s where the value of this transfer can really shine.

Let’s say you transfer $7,100 this year into an HSA, and it grows for 30 years earning an annualized 5% return. That will give you nearly $31,000 in tax-free dollars to cover health care costs. If you used $31,000 saved in a Traditional IRA to cover those same expenses, you would owe income tax on every dollar you withdraw. Even at today’s low income tax rates, that adds up. For someone in today’s 22% tax bracket that would mean $220 of every $1,000 you withdraw from a traditional IRA would go to the IRS, leaving you less to cover your expenses. Withdraw the same $1,000 from your HSA to cover a qualified medical expense and you will owe no tax.

Carla Fried

Carla Fried

Carla specializes in service journalism for news outlets including The New York Times, Money magazine, and For the past 15 years she has writen for traditional news outlets, ghostwriting books and articles for clients, creating content for major financial service firms, and editing investment newsletters and white papers.

Her work appears in The New York Times, Money Magazine, Barron's and Consumer Reports.

piggy bank on pink background


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Lively · May 9, 2024 · 3 min read

On May 9, 2024 the Internal Revenue Service announced the HSA contribution limits for 2025. For 2025 HSA-eligible account holders are allowed to contribute: $4,300 for individual coverage and $8,500 for family coverage. If you are 55 years or older, you’re still eligible to contribute an extra $1,000 catch-up contribution.

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What is the Difference Between a Flexible Spending Account and a Health Savings Account?

Lauren Hargrave · February 9, 2024 · 12 min read

A Health Savings Account (HSA) and Healthcare Flexible Spending Account (FSA) provide up to 30% savings on out-of-pocket healthcare expenses. That’s good news. Except you can’t contribute to an HSA and Healthcare FSA at the same time. So what if your employer offers both benefits? How do you choose which account type is best for you? Let’s explore the advantages of each to help you decide which wins in HSA vs FSA.

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Health Savings Accounts

Ways Health Savings Account Matching Benefits Employers

Lauren Hargrave · October 13, 2023 · 7 min read

Employers need employees to adopt and engage with their benefits and one way to encourage employees to adopt and contribute to (i.e. engage with) an HSA, is for employers to match employees’ contributions.

Disclaimer: the content presented in this article are for informational purposes only, and is not, and must not be considered tax, investment, legal, accounting or financial planning advice, nor a recommendation as to a specific course of action. Investors should consult all available information, including fund prospectuses, and consult with appropriate tax, investment, accounting, legal, and accounting professionals, as appropriate, before making any investment or utilizing any financial planning strategy.



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