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    Moving IRA funds to a Health Savings Account

    Moving IRA funds to a Health Savings Account

    Cash Flow and Retirement

    Did you know that you can transfer funds directly from your IRA to a Health Savings Account (HSA) without taxes or penalties? According to the IRS, you’re permitted to make one such “qualified HSA funding distribution” during your lifetime.

    Ordinarily, if you have an IRA and an HSA, it’s typically a good idea to contribute as much as possible to both to make the most of their tax benefits. But if you’re hit with high medical expenses and have an insufficient balance in your HSA, transferring funds from your IRA may be a solution.

    Help with health care costs

    An HSA is a savings account that can be used to pay qualified medical expenses with pre-tax dollars. It’s generally available to individuals with eligible high deductible health plans. Currently, the annual limit on tax-deductible contributions to an HSA is $3,600 for individuals with self-only coverage and $7,200 for individuals with family coverage. If you’re 55 or older, the limits are $4,600 and $8,200, respectively. Those same limits apply to an IRA-to-HSA transfer, reduced by any contributions already made to the HSA during the year.

    Here’s an example illustrating the potential benefits of a qualified HSA funding distribution from an IRA: Joe is 58 years old, with a self-only, high deductible health plan. In 2021, he needs surgery for which he incurs $5,000 in out-of-pocket costs. Joe is strapped for cash and only has $500 left in his HSA, but he does have a $50,000 balance in his traditional IRA. Joe may move up to $4,600 from his IRA to his HSA tax and penalty-free.

    Other considerations

    If you decide to transfer funds from your IRA to your HSA, keep in mind that:

    • The distribution must be made directly by the IRA trustee to the HSA trustee,
    • Funds transferred to the HSA aren’t tax-deductible, but because the IRA distribution is excluded from your income, the effect is the same (at least for federal tax purposes), and
    • A transfer counts toward your maximum HSA contribution for the year.

    This is a once-in-a-lifetime opportunity. However, if you make a distribution during a month when you have self-only coverage, you can make another one in a later month in the same tax year if you change to family coverage.

    These transfers are relatively straightforward. But if you’re contemplating an IRA-to-HSA move, consult your Lenox advisor for specific advice.


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