Wealth

Can you Fund your HSA from your IRA???

Can you Fund your HSA from your IRA???

If you have an HSA (Health Savings Account), you know the
great value is that you can use funds from the account Tax-Free to pay for
medical expenses.  Unfortunately like
most government created financial instruments, there is a limit on how munch
you can contribute to the account each year. 
But even with a contribution limit, Employee Benefit Research Institute
(EBRI) reports that in 2017 only 13% of all HSA accounts were fully funded and
36% of HSA accounts were not funded at all.

Typically, the reason accounts are not fully funded is the
owner is either not educated on how the accounts work; or they do not have the
cash flow/income to make the contribution.

So, there is a strategy that most people do not know about,
where you can take dollars from your IRA and move them to your HSA.  And most importantly you pay no tax or
penalty to do this.  It is called a QHFD
(Qualified HAS Funding Distribution) and it works like this.

First, you need to understand that this is a once in a
lifetime option.  While you are not
allowed to do this more than once in your lifetime, the QHFD lets you take a
tax-free distribution of your IRA funds and transfer them to your HSA.  You can only transfer up to your allowable
HSA contribution limit.  In 2019 those
limits are $3500 for single and $7000 for family coverage. (There is a catch-up
contribution for those of you over 55). 
So as an example, if you are single and made a $1000 contribution into
your HSA, you would be able to do a $2500 QHFD.

Couple of gotchas. 
The transfer must be done direct. 
You cannot use the 60-day rollover rules.  And since you can only do this once, you must
make the complete transfer from one IRA. 
If you have multiple IRAs with balances less than your transfer amount,
you will first need to combine your IRAs before making the QHFD transfer.  Also, this is for taxable IRA money
only.  If you made non-deductible IRA
contributions, those dollars will not qualify.

Since this is a little know strategy and may not be for
everyone, YourSmartMoneyMove is to check with your financial planner or tax
advisor to discuss the specifics of your situation.

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