IRAs

Tap an IRA Tax-Free With an HSA Rollover

You can convert tax-deferred money in a traditional IRA into tax-free cash by rolling it over to a health savings account and using it to pay for medical bills.

Question: I’m going to have knee surgery in a few months, and I’d like to roll over money from my traditional IRA to my health savings account, so I can take the withdrawal tax-free. How much can I roll over, and what are the rules?

Answer: You can make a one-time rollover from your IRA to the health savings account, as long as you have an HSA-eligible health insurance policy. You can roll over up to your HSA contribution limit for the year, minus any contributions you’ve already made. That means you can contribute or roll over up to $3,500 in 2019 if you have single health insurance coverage, or up to $7,000 if you have family coverage. If you’re 55 or older, you can contribute or roll over an extra $1,000.

Rolling over money from a traditional IRA to an HSA changes it from tax-deferred to tax-free, if you use the HSA money for eligible medical expenses. You can only make an IRA-to-HSA rollover once in your lifetime. And you must transfer the money directly from the IRA to the HSA for the transfer to be tax-free. Ask your HSA administrator for its procedure.

To qualify as an HSA-eligible policy in 2019, the insurance must have a deductible of at least $1,350 for single coverage or $2,700 for family coverage. See Health Savings Account Limits for 2019 for more information about the requirements for an HSA-eligible policy.

Rather than doing a rollover, it’s better to make new contributions to the HSA instead, if you can afford it. That way, you can benefit from the tax-deductible contribution to the HSA this year and also withdraw the money tax-free from it, while keeping the other money growing tax-deferred in your IRA.

Most Popular

Your Guide to Roth Conversions
Special Report
Tax Breaks

Your Guide to Roth Conversions

A Kiplinger Special Report
February 25, 2021
Can't Sleep at Night? Consider Getting Checked Out By a Doctor
health insurance

Can't Sleep at Night? Consider Getting Checked Out By a Doctor

Older adults are more likely to suffer from sleep disorders, such as insomnia and sleep apnea. Left untreated these conditions can have dire consequen…
May 26, 2021
Midyear Investing Outlook: Where to Invest Now
Kiplinger's Investing Outlook

Midyear Investing Outlook: Where to Invest Now

After a powerful start, stocks will grind higher in the second half of 2021. But watch out for curveballs.
May 23, 2021

Recommended

Invest in a Roth 401(k) If You Can
401(k)s

Invest in a Roth 401(k) If You Can

Workers of all ages can benefit from stashing away after-tax money now in exchange for tax-free withdrawals in the future.
June 11, 2021
Taxes on Unemployment Benefits: A State-by-State Guide
state tax

Taxes on Unemployment Benefits: A State-by-State Guide

Don't be surprised by an unexpected state tax bill on your unemployment benefits. Know where unemployment compensation is taxable and where it isn't.
June 10, 2021
5 Key Considerations as You Craft Your Retirement Plan
retirement planning

5 Key Considerations as You Craft Your Retirement Plan

No retirement plan is complete without covering these five key areas.
June 10, 2021
Estimated Tax Payments Are Due June 15
tax deadline

Estimated Tax Payments Are Due June 15

The deadline for submitting your second estimated tax payment of 2021 is almost here, so get your payments in quickly.
June 9, 2021