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Initial Funding of HSA account
Old 06-09-2015, 07:38 PM   #1
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Initial Funding of HSA account

I will be retiring midyear. I do not currently have an HSA and plan to start one when I leave Megacorp. I know I can do a one time transfer from an IRA to an HSA. But I got to thinking (a sometimes dangerous thing) that I might be better off funding it this year out of income and doing the one time transfer next year. My reasoning being I may have zero earned income next year and the limits for the one time transfer will likely be higher next year.

So, is this sound reasoning or is there a "gotcha" in there somewhere I have overlooked?

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Old 06-09-2015, 07:55 PM   #2
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Doesn't have to be earned income. I take my income from ira each year and get a benefit on taxes the following year from what I put in the HSA.

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Old 06-09-2015, 07:58 PM   #3
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I have an HSA was well but could never convince myself that a transfer to an HSA from my tIRA was preferable to a simple Roth conversions. As I understand it the tax implications are the same (the transfer is income) but the HSA has more limitations since it has to be spent on medical expenses but the Roth doesn't so I just do Roth conversions.

I guess if you plan to use the money on qualified medical expenses before you turn 59 1/2 that there might be an angle there but that wasn't applicable in my case.
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Old 06-10-2015, 08:53 AM   #4
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pb-- The transfer is not deductible as an HSA contribution. But I will be 51 and it is a way to move funds from my tIRA tax and penalty free before age 59.5. See below:

A. HSA Treatment
-Not Deductible.
IRA to HSA contributions are not tax deductible as an HSA contribution.

IRA Treatment
-Not Taxable.
A qualified HSA funding distribution from an IRA enjoys an exception to the normal rule that IRA distributions are subject to income tax and possibly a 10% penalty. The law allows for the basis (after-tax dollars) to remain in the IRA to the extent that such amount does not exceed the aggregate amount which would have been so included if there were a total distribution from the IRA or Roth IRA owner’s accounts. Basis is an important, but confusing, tax concept -See p. 2 for details.

Testing Period.
You will be subject to a testing period if you complete an IRA to HSA qualified funding distribution.
If you fail to maintain your HSA eligibility for the testing period, taxes and penalties apply. See p.2 for details.
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