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One-time qualified Health Savings Account (HSA) funding distribution
Old 07-10-2020, 08:08 PM   #1
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One-time qualified Health Savings Account (HSA) funding distribution

Someone asked about this a few years ago on this site. I read about it in IRS Pub 590-B. Here is the link

https://www.irs.gov/publications/p590b

"You may be able to make a qualified HSA funding distribution from your traditional IRA or Roth IRA to your HSA."

"Generally, only one qualified HSA funding distribution is allowed during your lifetime."

The only situation anyone could come up with where this would be beneficial is where you wanted to start an HSA but had no money. Since both the income and HSA deduction are above the AGI line and both are part of Obama MAGI, I see no benefit to this. Anyone see differently?
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Old 07-10-2020, 10:56 PM   #2
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The HSA is the only one that gets all 3 of the tax benefits:1) deduction when contributed,2) tax-deferred growth, and 3)tax free withdrawals (for qualified expenses). TIRA only gets 1) & 2) and Roth only gets 2) & 3).

If you do the one-time -transfer from TIRA, you don't get the deduction ( but the money got it when you contributed to TIRA) but you add 3) for an additional benefit. If you do the one-time transfer from Roth, you don't get the deduction so the benefits are the same as Roth so no gain.
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Old 07-11-2020, 04:54 AM   #3
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Originally Posted by Z3Dreamer View Post
The only situation anyone could come up with where this would be beneficial is where you wanted to start an HSA but had no money. Since both the income and HSA deduction are above the AGI line and both are part of Obama MAGI, I see no benefit to this. Anyone see differently?
Right, thatís what I figured out. You needed the money for health expenses, but only had IRA money available.
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Old 07-11-2020, 05:09 AM   #4
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Maybe this can help me? I just retired at 61.5 from Megacorp and am paying them (at COBRA rates) for my retiree health insurance until I turn 65. Gold plan. I have little $ in my HSA to pay the premiums, plenty in my tIRA. It would be helpful if I had 3+ years in premiums in the HSA. What do you think?
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Old 07-11-2020, 05:22 AM   #5
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Just wondering if this option might come in handy if one of us needs long-term care.

If/when one of us needs long term care if there isn't enough in our HSAs to cover it we could transfer a few years worth of long-term care expenses to the HSA from our tIRA and then use the HSA to pay for the long-term care expenses.

To the extent that we use the money for qualified expenses we avoid tax on the tIRA withdrawal.

If we don't drain the HSA then it can be withdrawn and will be taxed, but that is no different from just withdrawing the money from the tIRA that it was in to begin with.
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Old 07-11-2020, 05:27 AM   #6
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Maybe this can help me? I just retired at 61.5 from Megacorp and am paying them (at COBRA rates) for my retiree health insurance until I turn 65. Gold plan. I have little $ in my HSA to pay the premiums, plenty in my tIRA. It would be helpful if I had 3+ years in premiums in the HSA. What do you think?
It might, but usually COBRA is only 18 months and COBRA premiums are eligible expenses, but I question if you would want to blow your once in a lifetime opportunity to do a transfer for a tax benefit on 18 months of COBRA expenses.

Even if your COBRA is $2k a month that's $36k in total... and how much can the tax benefit on $36k of withdrawals spread over two tax years be?
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Old 07-11-2020, 06:14 AM   #7
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I think you are still stuck with the annual funding max? Including other contributions.

So you probably can’t do it after 65 either.

https://www.forbes.com/sites/bobcarl.../#321d108435fc
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Old 07-11-2020, 06:57 AM   #8
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Originally Posted by audreyh1 View Post
I think you are still stuck with the annual funding max? Including other contributions.

So you probably canít do it after 65 either.

https://www.forbes.com/sites/bobcarl.../#321d108435fc
I agree and found one further limitation. With a normal contribution you have until the due date of the return. With this one time thing, I read that it must during the year. So, deadline for 2020 is 12/31/20, not 4/15/21.
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Old 07-11-2020, 08:15 AM   #9
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It seemed promising, but in fact has a very limited benefit.
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Old 07-11-2020, 09:32 AM   #10
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I think you are still stuck with the annual funding max? Including other contributions.

So you probably canít do it after 65 either.

https://www.forbes.com/sites/bobcarl.../#321d108435fc
Yup... I see now... in that case it is next to useless IMO.
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Old 07-14-2020, 09:14 PM   #11
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Originally Posted by Z3Dreamer View Post
The only situation anyone could come up with where this would be beneficial is where you wanted to start an HSA but had no money. Since both the income and HSA deduction are above the AGI line and both are part of Obama MAGI, I see no benefit to this. Anyone see differently?
Hereís where it would be beneficial (IMO) - if you are retired and canít funnel wages into an HSA but you are receive RMDs from an inherited IRA, you can make a one time transfer from that inherited IRA to an HSA and have it count as your RMD for that year. The result is that you wonít pay tax on the distribution (or have it count against ACA rates) and yet get to add it to your HSA. And once in the HSA, as others have said, you withdraw it tax free as long as it pays for valid expenses.

Some say thereís a risk that you wonít be in a high deductible insurance plan for the next 12 months - I donít see that happening.
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Old 07-15-2020, 12:47 AM   #12
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I did this, for those of us who have most of our money in IRAs it allows us to make contributions without pulling money from the limited after tax accounts.
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