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.

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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.

Kimberly Lankford
Contributing Editor, Kiplinger's Personal Finance

As the "Ask Kim" columnist for Kiplinger's Personal Finance, Lankford receives hundreds of personal finance questions from readers every month. She is the author of Rescue Your Financial Life (McGraw-Hill, 2003), The Insurance Maze: How You Can Save Money on Insurance -- and Still Get the Coverage You Need (Kaplan, 2006), Kiplinger's Ask Kim for Money Smart Solutions (Kaplan, 2007) and The Kiplinger/BBB Personal Finance Guide for Military Families. She is frequently featured as a financial expert on television and radio, including NBC's Today Show, CNN, CNBC and National Public Radio.