The IRS issued guidance on the transfer of funds from an IRA to HSA. This notice provides guidance on a qualified HSA funding distribution from an individual’s Individual Retirement Account (IRA) or Roth IRA to a Health Savings Account (HSA). The qualified HSA funding distribution is a one-time transfer from an individual’s IRA to his or her HSA and generally excluded from gross income.
A qualified HSA funding distribution (I.e. a distribution from the IRA to fund the HSA) may be made from a traditional IRA or a Roth IRA, but not from an ongoing SIMPLE IRA. The qualified HSA funding distribution from the IRA or Roth IRA of an eligible individual to that individual’s HSA must be less than or equal to the IRA or Roth IRA account owner’s maximum annual HSA contribution. Generally, only one qualified HSA funding distribution is allowed during the lifetime of an individual. If, however, the distribution occurs when the individual has self-only HDHP coverage, and later in the same taxable year the individual has family HDHP coverage, the individual is allowed a second qualified HSA funding distribution in that taxable year. Both distributions count against the individual’s maximum HSA contribution for that taxable year. Note, the distribution cannot be made to an HSA owned by any other person, including the individual’s spouse.
An individual must be an eligible individual (eligible to contribute to an HSA) at the time of the qualified HSA funding distribution. The distribution must be a direct transfer from an IRA or Roth IRA to an HSA.
If a qualified HSA funding distribution is made from the individual’s IRA or Roth IRA to the individual’s HSA and the individual remains an eligible individual during the entire testing period, the amount of the qualified HSA funding distribution is excluded from the individual’s gross income and the 10 percent additional tax does not apply. The testing period begins with the month in which the qualified HSA funding distribution is contributed to the HSA and ends on the last day of the 12th month following that month.
The following examples illustrate these rules. Read the rest of this entry »