Funding Your HSA With Your IRA Take advantage of this little known benefit Health Savings Accounts (HSA) are a commonly offered benefit at many companies. The primary benefit of an HSA is it allows individuals covered by high-deductible health plans to save money for medical expenses tax-free.
But did you know that you can use your IRA to fund your HSA? If you have an HSA and have never considered using your IRA to fund it, you’re not alone. But the option is available and taking advantage of it is called a Qualified HSA Funding Distribution (QHFD).
How does a Qualified HSA Funding Distribution (QHFD) work? A QHFD is completed by transferring money directly from your IRA to your HSA. The amount transferred cannot exceed the amount you’re eligible to contribute into your HSA for the calendar year. Such a transaction is not subject to the typical 10 percent early distribution penalty nor is it taxable. Think it's too good to be true? Read on...
What are the advantages and disadvantages of a QHFD? If funds are needed in your HSA immediately to pay medical expenses, the QHFD is a quick and easy way to satisfy this need. It is also a way to move taxable funds out of your IRA tax free, since using funds from your HSA instead means they will be tax and penalty free. To simply take a distribution from your IRA would be taxable, plus a potential deduction, so using IRA funds in a QHFD offers a tax advantage.
The one drawback is that you may only do one QHFD in your lifetime. There is one exception to this. If you start the year out with self-only coverage and then switch to family coverage, the additional amount can be transferred in the same year. If you do a QHFD, you must remain eligible for the HSA for the period beginning with the month of the contribution through the last day of the month twelve months later.
Since the QHFD isn’t a widely understood or well-known strategy, it may not be for everyone. To discuss questions about the QHFD strategy, or if you have general questions regarding your financial future, schedule a 15-minute call with one of our advisors.
Investment advice is offered through Bayntree Wealth Advisors, LLC, an SEC-registered investment adviser. Insurance and annuity products are offered separately through Bayntree Planning Group, LLC. Bayntree does not provide, and no statement contained herein shall constitute, tax or legal advice. You should consult a tax or legal professional on any such matters. Opinions expressed herein are solely those of Bayntree Wealth Advisors. All content is for informational purposes only and is not intended to provide the basis for any financial decisions.
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