I know that a new tax law lets you roll over money from an IRA to a health savings account. When can you do this?
A new tax law signed in late 2006 made several changes to the HSA rules, including allowing rollovers from an IRA to an HSA without taxes or penalties. But the rollover rule isn't quite as generous as it seems.
You can make the rollover only once in your lifetime, and only up to the maximum HSA contribution limit for the year -- which is $2,850 for individuals or $5,650 for family coverage in 2007 (plus an extra $800 for people age 55 and older), minus any HSA contributions you've already made for the year. And you must already have an HSA, which requires having a health insurance policy with at least a $1,100 deductible for individuals or $2,200 for family coverage in 2007.
Sign up for Kiplinger’s Free E-Newsletters
Profit and prosper with the best of expert advice on investing, taxes, retirement, personal finance and more - straight to your e-mail.
Profit and prosper with the best of expert advice - straight to your e-mail.
This rollover can provide a tax-free source of money to cover big medical expenses or help you jump-start your HSA for future savings. But if you have enough cash, it's better to make your full HSA contribution with new money because your contributions are tax deductible and can be used tax free for medical expenses. Then max out your IRA contribution ($4,000 for 2007; $5,000 if you're 50 or older). That way you can make the most of both tax-advantaged accounts without having to raid your retirement fund. If you do want to make the rollover, contact both your IRA and your HSA administrator and tell them that you want to make a direct transfer, so you don't touch the money and incur any taxes or penalties.
For more information, see Health Savings Account Answers.
-
Getting Out of an RMD Penaltyretirement When your brokerage firm miscalculates your required minimum distributions, you have recourse.
-
Borrowers Get More Time to Repay 401(k) Loans
retirement If you leave your job while you have an outstanding 401(k) loan, Uncle Sam now gives you extra time to repay it -- thanks to the new tax law.
-
It’s Not Too Late to Boost Retirement Savings for 2018
retirement Some retirement accounts will accept contributions for 2018 up until the April tax deadline.
-
How to Correct a Mistake on Your RMDs from IRAsretirement If you didn't take out the correct required minimum distribution because your brokerage firm made a mistake, the IRS may show some leniency.
-
Making the Most of a Health Savings Account Once You Turn Age 65
Making Your Money Last You’ll face a stiff penalty and taxes if you tap your health savings account for non-medical expenses before the age of 65. After that, the rules change.
-
Reporting Charitable IRA Distributions on Tax Returns Can Be Confusing
IRAs Taxpayers need to be careful when reporting charitable gifts from their IRA on their tax returns, or they may end up overpaying Uncle Sam.
-
Make the Most of the New Military Retirement Plan
retirement The government is offering a new retirement option so that service members who leave the military before qualifying for a pension can still receive some benefits.
-
How Changes in Income Affect Medicare Premiums
Medicare Medicare beneficiaries can see their premiums go up if their income rises, although for some that increase will be only temporary.
