Rules for Rolling Over an IRA to a Health Savings Account

Can you roll over money from an IRA to a health savings account after you’re on Medicare?

No. You can only roll over money from an IRA to an HSA when you’re eligible to make new HSA contributions, and you can’t make new HSA contributions after you sign up for Medicare.

But there’s a quirk in the rules that makes things more complicated: a special “12-month testing period” for the rollover, which means you need to remain eligible to make HSA contributions for up to 12 months after rolling over the money from the IRA to the HSA, or else some of the funds will be taxable as income and a 10% penalty will apply, says Roy Ramthun, president of HSA Consulting Services.

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Because of this rule, it’s best to roll over money from an IRA to an HSA more than a year before you plan to sign up for Medicare, while you still have an HSA-eligible high-deductible health insurance policy. To qualify to make new HSA contributions in 2016, your policy must have a deductible of at least $1,300 for individual coverage or $2,600 for family coverage.

You can roll over money from your IRA to an HSA only once in your lifetime, and the amount is limited to the maximum HSA contribution for the year, minus any HSA contributions you’ve already made in that year. In 2016, the HSA contribution limit is $3,350 if you have individual coverage or $6,750 for family coverage, plus an extra $1,000 if you’re 55 or older anytime during the year.

Transferring money from the IRA to an HSA can help you get money into the HSA quickly, which you can then use tax-free for medical expenses. So you can take money that is tax-deferred in a traditional IRA and would be taxable when withdrawn and instead make it eligible for tax-free withdrawals from an HSA. But if you can afford to make new contributions to the HSA, that’s usually a better choice – you get to keep more money in your IRA, and you can take a tax deduction for new HSA contributions.

For more information about the rules, see IRS Publication 969, Health Savings Accounts and Other Tax-Favored Health Plans. Also see our FAQs About Health Savings Accounts.