spending

Roll Retirement Money Into a Health Savings Account?

You can make a tax- and penalty-free transfer from an IRA to HSA, but it might not be a good move.

Can I roll over money from an IRA to a health savings account? Is it a good idea?

You can roll over money from an IRA to a health savings account without incurring taxes or penalties, but there are very specific rules and it may not be your best option. The size of the rollover is limited to the maximum HSA contribution for the year minus any HSA contributions you have already made for the year. For 2011, the maximum HSA contribution is $3,050 for self-only coverage or $6,150 for family coverage (plus an extra $1,000 if you’re 55 or older). To qualify for an HSA, you must have a health insurance plan with a deductible of at least $1,200 for self-only coverage or $2,400 for family coverage.

Rolling over funds from an IRA to an HSA can provide a tax-free source of money to cover big medical expenses or help you build up your HSA balance. 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 contributions for the year, too ($5,000 for 2011, or $6,000 if 50 or older by year-end), so 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 HSA administrator and tell them that you want to make a direct transfer.

For more information about health savings accounts, see What to Know About Health Savings Accounts and Health Savings Account Answers. For more information about IRA limits, see The Basics of Roth IRAs.

Most Popular

Why Are Gas Prices Still Going Up?
spending

Why Are Gas Prices Still Going Up?

The cost of a gallon of gas is at an all-time high. What’s driving the surge and will gas prices go down anytime soon?
May 23, 2022
Your Guide to Roth Conversions
Special Report
Tax Breaks

Your Guide to Roth Conversions

A Kiplinger Special Report
February 25, 2021
Which States' Taxes Are Going Down
Tax Breaks

Which States' Taxes Are Going Down

State lawmakers are cutting income, sales and property taxes to return budget surpluses to residents.
May 25, 2022

Recommended

4 Keys to Planning Your Hard-Earned Retirement Income Distributions
retirement planning

4 Keys to Planning Your Hard-Earned Retirement Income Distributions

The fear of running out of money in retirement is understandable. When you have a well-thought-out retirement income plan, you can quit worrying.
May 27, 2022
How to Find the Perfect Balance Between Spending and Saving
retirement

How to Find the Perfect Balance Between Spending and Saving

It's the key to being able to enjoy life now AND in the future. It's also the basis for a successful retirement plan, and it all starts with setting y…
May 24, 2022
Education is Key: 3 Financial Lessons for Retirees Nearing Retirement
retirement planning

Education is Key: 3 Financial Lessons for Retirees Nearing Retirement

When it comes to retirement planning, educating yourself can keep you from making big mistakes. Here are three key lessons that everyone preparing for…
May 24, 2022
Why Are Gas Prices Still Going Up?
spending

Why Are Gas Prices Still Going Up?

The cost of a gallon of gas is at an all-time high. What’s driving the surge and will gas prices go down anytime soon?
May 23, 2022