Why would someone move retirement account money to a health savings account? Well, once you do retire and start being covered through Medicare, a health savings account offers certain advantages over an IRA. And, before you retire, such a move can give you access to IRA money without an early withdrawal penalty in order to pay medical bills. Since 2006, it’s been permitted to rollover IRA money into an HSA and you won’t incur taxes or penalties. Here are a couple of examples of how this works.
Do You Need Access to Retirement Savings for Medical Bills?
You can rollover IRA funds to your HSA just once in a lifetime. That means you can only move the maximum amount of money you can deposit in an HSA for that year minus HSA contributions already made for the year. If you’re at least 55 years old, you can add an extra $1,000 to the maximum HSA contribution allowed for the year.
You can use such a rollover for a couple of things. 1) It’s obviously a tax-free source of money to pay off major medical expenses, which can help get you out of debt. 2) If you don’t have that problem, you can jump start building up an HSA balance with the transfer. Do that if you see health problems getting worse and realize you’re going to have a lot of out-of-pocket expenses coming.
Learn More about Health Savings Accounts
Since you can only do this once, do your homework first. You’ll find lots of educational resources here on our website to help you understand how an HSA works, what types of investments you can make with the funds, etc. And, of course, feel free to contact us with any questions you may have.
To do this type of a rollover, work with both your IRA and HSA administrators. Ask for a direct transfer where you don’t handle the money to avoid incurring penalties or taxes.
If the money is available, you can get a bigger tax deduction by contributing money to both an IRA and an HSA in the same year. But, if not and you need money for health care, transferring it from your IRA may solve your problem.