Another Way to Fund a Health Savings Account

Can I transfer money from my traditional IRA to a health savings account?

If you have an HSA-eligible health insurance policy, then you can roll money over from a traditional IRA to an HSA and avoid a tax bill on that money when you withdraw it for medical expenses. However, you can make the tax-free rollover only once in your lifetime, up to the annual HSA contribution limit ($3,300 if you have individual coverage or $6,550 for family coverage, plus $1,000 if you are 55 or older anytime during the year), minus any contributions you’ve already made to the HSA for the year. You must be enrolled in an HSA-eligible policy for 12 months after making the transfer to avoid penalties.

FAQs About Health Savings Accounts

To be HSA-eligible, your policy must have a deductible of at least $1,250 for individual coverage or $2,500 for families in 2014. It must also meet a few other requirements (everything except for preventive care, for example, must be subject to the deductible) The easiest way to find out if the policy is HSA eligible is to ask the insurer.

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If you can afford to make the HSA contribution without tapping your IRA, that’s usually a better option because you can take a tax deduction for your HSA contribution and keep the other money growing tax-deferred in your IRA.

As the "Ask Kim" columnist for Kiplinger's Personal Finance, Lankford receives hundreds of personal finance questions from readers every month. She is the author of Rescue Your Financial Life (McGraw-Hill, 2003), The Insurance Maze: How You Can Save Money on Insurance -- and Still Get the Coverage You Need (Kaplan, 2006), Kiplinger's Ask Kim for Money Smart Solutions (Kaplan, 2007) and The Kiplinger/BBB Personal Finance Guide for Military Families. She is frequently featured as a financial expert on television and radio, including NBC's Today Show, CNN, CNBC and National Public Radio.