Jump-Starting a Health Savings Account With an IRA Rollover

Question: How much money can I roll over from my IRA to a health savings account? Also, are contributions from a rollover tax-deductible?

Answer: You can make one rollover from an IRA to a health savings account in your lifetime, which can be a good way to jump-start your HSA if you don’t have new money to save. But you can only make a rollover if you’re eligible to make new HSA contributions that year. In 2018, you need an HSA-eligible health insurance policy with a deductible of at least $1,350 for single coverage or $2,700 for family coverage. The amount you can roll over is limited to your maximum HSA contribution for the year. That’s $3,450 for single coverage or $6,900 for family coverage in 2018, plus $1,000 if you’re 55 or older – minus any contributions you’ve already made for the year.

You’ll be able to use the money tax-free for eligible medical expenses, rather than having to pay taxes (and a 10% penalty if you’re under age 59½) if you withdraw the money from the IRA. The rollover must be made directly from the IRA administrator to the HSA administrator for it to be tax-free; you can’t withdraw the money from the IRA yourself first.

Subscribe to Kiplinger’s Personal Finance

Be a smarter, better informed investor.

Save up to 74%

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.

Sign up

You bring up a good point about the tax deduction. You can deduct direct contributions to an HSA, but you can’t deduct contributions that you roll over from an IRA to an HSA. So if you can afford to make your HSA contribution with other money, you’ll benefit from the extra tax break.

For more information about the rollover rules, see the “Qualified HSA funding distribution” section of IRS Publication 969, Health Savings Accounts. For more information about HSAs, see our FAQs About Health Savings Accounts.