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Transferring IRA Money to an HSA

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Making a one -time transfer of funds from your IRA to your HSA will enable added tax savings. Continuing to contribute to your HSA, will only enhance your long term health nest egg.

Making a one -time transfer of funds from your IRA to your HSA will enable added tax savings. Continuing to contribute to your HSA, will only enhance your long term health nest egg.

Qualifications for Transferring IRA Money to an HSA

In order to transfer IRA money to an HSA, you must be eligible to contribute to an HSA. In order to contribute to an HSA, you must be eligible for an HSA compatible healthcare plan (like a high deductible health plan). However, if your employer does not provide an HSA, you can open one on your own. The same goes if you have any individual healthcare plan. By the same guidelines, if you are enrolled in Medicare you are not eligible.

IRA vs. HSA

An Individual Retirement Account (IRA) is a health savings vehicle designed to help individuals save for retirement and offers specific tax advantages. There are two types – a Traditional IRA and a Roth IRA, which differ mostly by the tax benefits they offer.

  • Traditional IRAs – include contribution deductions, but tax earnings are deferred on investment earnings until funds are withdrawn, usually in retirement.
  • Roth IRAs – include no contribution deductions, but all investment earnings will be distributed tax and penalty-free in retirement.

An HSA or Health Savings Account is a personal saving account for health expenses that include triple tax advantages (tax-deductible contributions, tax-free interest and tax-free withdrawals (for medical expenses)). Please note you must transfer the money directly from your IRA to your HSA. This is also a one-time life event, you can’t make multiple IRA to HSA transfers so keep that in mind. 2018 HSA contribution limits (set annually by the IRS) are $3,500 for individuals and $6,900 for families.

The value of transferring IRA money to an HSA is that you can convert tax-deferred dollars into tax-free money that can be used for qualified out of pocket medical expenses. In addition, after the age of 65, an HSA can be used for non-health expenses – just pay income taxes at that time with no penalty, just like an IRA or 401k. In addition and unlike an IRA, you can let your HSA grow well into your 70s, 80s, 90s, etc. because there are no mandatory distributions.

How to get more from your HSA

If you continue to contribute to your HSA via payroll contributions or one-time contributions you can continue to reap the triple tax benefits mentioned above. Combined with an FDIC Insured, Interest Bearing Account or by investing those HSA funds, you can further increase the long-term value of your HSA through the seemingly magical power of compound interest. This could create a healthy nest egg (pun intended) that can be used for short-term health costs and long-term savings.

The content presented in this article are for informational purposes only, and is not, and must not be considered 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 investment, accounting, legal, and accounting professionals, as appropriate, before making any investment or utilizing any financial planning strategy.

If you need more help with HSA decisions, check out our blog. We will make you a healthcare benefits expert in no time, without any extra work or effort on your end.

 

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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Lively

We are HSA Experts! Lively is a Health Savings Account (HSA) platform for employers and individuals. A 401(k) for healthcare.

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