Legal Blog

The Weekly Scenario: HSAs & IRAs

Question: Can I combine funds held in my Health Savings Account or HSA with my IRA?

Answer: For the most part, HSAs and IRAs need to be completely separate accounts and cannot be commingled. You cannot roll over or transfer HSA funds to an IRA and vice versa. But there is an exception to the general rule.

An individual is permitted to transfer funds from his IRA to his HSA account up to the remaining contribution amount allowed for the year. But in order to do so, the individual must comply with a number of restrictions on the transfer, called a ‘qualified HSA funding distribution’ or QHFD.

Individuals are currently limited to just one QHFD in their lifetime, even a person with multiple IRAs. Such a transfer can only pass from IRAs and HSAs owned by the same person.

Comment: A QHRD is essentially a tax-free distribution of IRA funds to an HSA. The distribution may then be used to pay for qualified medical expenses. The tax free distribution will not be subject to the IRA 10% early withdrawal penalty because it is considered a tax free distribution.

As always, if you have any questions or would like to learn more, please let me know.

ABOUT STEVE SHANE

Steve Shane Casual SmallSteve Shane provides strategic counseling to clients in need of estate administration, charitable giving and business continuity planning while minimizing estate, gift, and generation-skipping transfer tax exposure. He offers legal guidance to clients on asset protection and the proper disposition of assets in accordance with the client’s objectives, while employing tax planning techniques such as the use of irrevocable trusts, life insurance planning, lifetime gifts and charitable trust. He is also experienced with drafting documents for business planning, the incorporation and application for exemption for Private Foundations and the administration of decedents’ estates.

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