Southern Geek
Recycles dryer sheets
I retired from MegaCorp last year at age 57 with a 7-figure 401K, almost all of it Before Tax. Because I separated from service after age 55, I am able to take withdrawals from 401K without paying the 10% penalty for early withdrawals. I am in process of doing some end-of-year tax planning when it struck me that there is a way to withdraw a 'small' amount from my 401K each year until I turn 65 without paying ANY taxes on the withdrawal by 'washing' the withdrawal through my HSA.
I can contribute the maximum $7550 to my HSA this year. I would withdraw that amount (+20% to cover the automatic FWT, or ~$9437 total) from 401K, deposit the net $7550 to my HSA, then withdraw $7550 tax free from my HSA which would 'remimburse' me for a part of my medical insurance premiums for this year. The $ withheld for FWT from the 401K withdrawal would be refunded to me when I file my taxes for this year (actually, it would reduce my taxes due by that amount so I don't even have to wait for the refund. I get an immediate benefit).
Has anyone tried this strategy? Any 'gotchas' I missed?
I can contribute the maximum $7550 to my HSA this year. I would withdraw that amount (+20% to cover the automatic FWT, or ~$9437 total) from 401K, deposit the net $7550 to my HSA, then withdraw $7550 tax free from my HSA which would 'remimburse' me for a part of my medical insurance premiums for this year. The $ withheld for FWT from the 401K withdrawal would be refunded to me when I file my taxes for this year (actually, it would reduce my taxes due by that amount so I don't even have to wait for the refund. I get an immediate benefit).
Has anyone tried this strategy? Any 'gotchas' I missed?