Advanced Underwriting Consultants

Ask the Experts – March 18

Ask the Experts!

The professionals at Advanced Underwriting Consultants (AUC) answer the tax and technical questions posed by producers.  Here’s the question of the day.

Question: Can my client roll over his traditional IRA into an HSA?

Answer: No, but he might be able to transfer a portion of his IRA to his HSA without incurring income tax liability by making a qualified HSA funding distribution.

A qualified HSA funding distribution is a way to fund an HSA with IRA money. It can be made from either a traditional IRA or Roth IRA to an HSA. Ongoing SEP IRAs or SIMPLE IRAs are not eligible. A SEP or SIMPLE IRA is ongoing if an employer contribution is made for the plan year ending within the tax year in which the qualified HSA funding distribution would be made.

The qualified HSA funding distribution must be made as a direct trustee-to-trustee transfer. The distribution is not included in the individual’s income, and it is not deductible. Only one qualified HSA funding distribution is allowed per individual.

The amount an individual can transfer from his IRA to an HSA in a qualified HSA funding distribution is limited to his general HSA contribution limit on the year. This limit depend on the type of HDHP coverage the individual has, his age, the dates he becomes eligible and ceases to be eligible to contribute. In 2014, for individuals with self-only HDHP coverage, an individual can contribute up to $3,300; for family coverage, up to $6,550. Any qualified HSA funding distribution reduces the amount that can be contributed to his HSA for that year.

The qualified HSA funding distribution is shown on Form 8889 in Line 10 for the year in which the distribution is made. Form 8889 is attached to the individual’s 1040 or 1040-NR.

Have a question for the professionals at AUC?  Feel welcome to submit it by email.  We may post your question and the answer as the question of the day.