If you’re now on Medicare but had opened a health savings account (HSA) when still working and were covered by a high-deductible health insurance policy, are you able to transfer funds from a traditional IRA to a health savings account now? How much can be transferred?
Kiplinger, in its recent article, “Transferring IRA Money to a Health Savings Account,” explains that you can only transfer money from an IRA to an HSA, if you’re eligible to make new HSA contributions. A person who’s enrolled in Medicare can no longer contribute to an HSA. However, the money in the account can be used tax-free for eligible medical expenses. Now that you’re over 65, these expenses include Medicare Parts B and D, as well as Medicare Advantage premiums.
Folks who still qualify to make HSA contributions can make a one-time rollover from an IRA to an HSA. That can be a wise way to build up the account, if you don’t have other cash to contribute. You currently must have an HSA-eligible health insurance policy with a deductible of at least $1,300 for single coverage or $2,600 for family coverage. The amount you can roll over is the same as your annual HSA contribution limit: up to $3,400 in 2017 if you have single coverage or $6,750 if you have family coverage, plus an extra $1,000 if you’re 55 or older. In addition, the annual contribution limit is the same, whether the money is coming from cash, an IRA rollover or a combination of the two.
Remember that you are required to transfer the money directly from the IRA to the HSA for the rollover to be tax-free. Ask your HSA administrator about how to do this. You can only roll money over from an IRA to an HSA once in your lifetime.
A rollover lets you convert tax-deferred dollars into tax-free money, if you use the withdrawals from the HSA for medical expenses. However, you’ll get a better tax benefit, if you can contribute new money to the HSA instead.
That’s how you can keep more money growing tax-deferred in the IRA and get a tax deduction for the new HSA contribution.
We want to help you with protecting your assets. We offer a free workshop "The Nuts & Bolts Of Medicaid Workshops". You can attend by clicking here and letting us know to save you a spot.
Jeffrey Bellomo, Esq.