TIRA to HSA income neutral?

[qwerty3656]

I know you can do 1-time direct transfer of TIRA money to HSA. Can't you, every year (after 59 1/2) take a distribution from a TIRA (which is taxable income) and offset it with an HSA contribution (which is tax deductible) and get to the same place as the direct roll over?

 

[Gotadimple]

I know you can do 1-time direct transfer of TIRA money to HSA. Can't you, every year (after 59 1/2) take a distribution from a TIRA (which is taxable income) and offset it with an HSA contribution (which is tax deductible) and get to the same place as the direct roll over?

I suppose so, if you are not yet age 65 and eligible for Medicare. Once eligible for Medicare you cannot make contributions. There are limits to the amount you can contribute to an HSA.

The question is: is this strategy worth the effort for the HSA contribution: $3,650 single/$7,300 distribution from an TIRA (plus $1,000 for those over 55)? In the bigger scheme of things, the "HSA Contribution" distribution from a TIRA doesn't amount to a lot of tax liability.

You can only transfer a larger amount one time from a TIRA, after that you are held to the IRS contribution limit.

- Rita

 

[SecondCor521]

You can only transfer a larger amount one time from a TIRA, after that you are held to the IRS contribution limit.

I used to think that too, but checking the rules seems to indicate that a QHFD can only be made up to one's contribution limit for the year.

 

[Alex The Great]

If you are looking for tax free tIRA distributions, you can offset it by tax deductible medical expenses greater than 7.5% of the income just in case if your income is low and health care expenses are high.

 

[audreyh1]

I used to think that too, but checking the rules seems to indicate that a QHFD can only be made up to one's contribution limit for the year.

Exactly. That’s the limit.

 

[Gotadimple]

Exactly. That’s the limit.

Agree, so tax liability wouldn't be large given the limits of HSA Contributions.

 

[big-papa]

And don't forget that you still need to have an HDHP HSA eligible health plan for 12 months after you do this.

Cheers

 

[qwerty3656]

I'm living off of retirement distributions and am limiting my TIRA distributions to keep my taxable income down (for ACA). So let's say I'm planning to take $40k in TIRA distributions because my limit on TIRA income is $40k. My point is, I should take [$48k] in distributions and make an [$8k] HSA contribution and I will be in exactly the same place taxable income wise. Right?

EDIT: I've already did the 1-time TIRA to HSA direct transfer

 

[RunningBum]

Yes, but I would look at them as separate transactions and decide if that is the best way to fund it.

IMO you should always take advantage of an HSA eligible account to make an HSA contribution, unless you judge that your HSA is over-funded and you don't expect to ever have enough medical expenses to use it for medical reimbursements. The contribution reduces your AGI, which is great for that ACA subsidy, so let's take it as a given that you will make an HSA contribution.

Now decide where you want to fund it from. Is your TIRA the best place, or do you have other funding sources? If you have other sources like taxable account savings, you might fund it from there. This would leave you with lower taxable income, which is better unless you need more to stay out of Medicaid.

If you're able to fund the HSA with taxable money, you have yet another option, which is to take the extra tax room the HSA contribution gave you to make a Roth conversion of the same amount. This would also put you in the same place taxable income wise, but lets you increase your Roth balance. I'd rather have money in a Roth than taxable unless I have an expected near term need for the income and cannot yet withdraw from the Roth. But your first post implied you are > 59 1/2 so I think you would have access.

 

[thefinancebuff]

I know you can do 1-time direct transfer of TIRA money to HSA. Can't you, every year (after 59 1/2) take a distribution from a TIRA (which is taxable income) and offset it with an HSA contribution (which is tax deductible) and get to the same place as the direct roll over?

Yes! That's why the once-in-a-lifetime transfer of TIRA money to HSA has no value except:
- You're under 59-1/2; AND
- You have no other money to contribute to HSA and would otherwise forego the contribution.

Other people should just ignore that this option even exists.

 

[audreyh1]

Yes! That's why the once-in-a-lifetime transfer of TIRA money to HSA has no value except:
- You're under 59-1/2; AND
- You have no other money to contribute to HSA and would otherwise forego the contribution.

Other people should just ignore that this option even exists.

Exactly!

I always figured it would be for someone who had expected medical expenses but no money to pay for them except in their IRA.