HSAs are "health savings accounts." These accounts allow you to contribute money to a tax-free account. This money can later be used to pay for your health care costs. These accounts are purchased in conjunction with a high-sdeductible health plan (HDHP). Along with paying for health care costs, your HSA account can be used to pay for the high deductibles on these plans. But, getting an HSA up and running requires initial funding. Fortunately, you can make a contribution from your IRA.
Significance
By contributing to your HSA through your IRA, you can use existing money from your retirement savings. This is significant if you end up using your health insurance in the first year you have the plan. Because deductibles are high, your IRA may provide you with the initial startup funding needed in order to pay for medical costs of your new plan. The contribution to your HSA from your IRA is a tax-free rollover.
Limitation
You may only contribute $3,050 as an individual and $6,150 if you have a family. This limitation is adjusted upward by $1,000 if you are over 55. The contribution from your IRA is a one-time contribution. You may not make regular contributions from your IRA to your HSA.
Warning
If you make more than the maximum contribution to your HSA, you will be subject to a penalty of 6 percent for each year that you make an excess contribution. If you remove the excess before the last day of the filing period for your taxes, you may avoid the penalty. Additionally, any money that is not used for health care expenses is treated as income and is subject to income tax. But, it is also subject to a 10 percent penalty.
Consideration
Before contributing to an HSA, think carefully about whether you will use the money. A one-time contribution amount from your IRA may help you get started in your HSA, but don't contribute more than you think you'll need for your health care. By taking money out of your IRA, you are reducing the amount of money you have to invest for your personal retirement. So, you should think carefully before contributing to your HSA from your IRA. This transfer is irreversible.
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