Can I Roll the Money in a Health Savings Account Over Into an IRA?
An HSA is a health savings account, which is a tax-free savings account designed to help you pay for medical expenses. These accounts are typically associated with high-deductible health plans. If you don't use the money to pay for medical expenses, you cannot roll it over into your IRA account.
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Function
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HSAs are health savings accounts that are set up with a bank. The bank pays interest on the account based on a low fixed-interest rate, like a money market fund rate. The money is deposited by you from your paycheck. You may then withdraw this money tax-free for qualified medical expenses.
Significance
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The significance of a health savings account is that it is not like an IRA. IRAs are individual retirement accounts. The money in them is meant to be used during your retirement years. An HSA can benefit you at any time, but only by paying for the cost of health care.
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Benefits
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The major benefit of an HSA is that your medical expenses are paid for using money that is never taxed. This means your contributions to the HSA are tax-deductible, and the earnings in the account are tax-exempt. With many insurers, you receive a debit card that makes it convenient to pay for services at your doctor or for pharmacy and hospital expenses.
Disadvantage
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One disadvantage of an HSA is that the money cannot be transferred to an IRA. Instead, money can be rolled over into another HSA. If the money in your HSA is not used before your death, you may pass it on to a beneficiary. If the beneficiary is your spouse, she may use it as if it is her HSA. If you pass the HSA on to someone other than your spouse, it is treated for tax purposes as income to a beneficiary.
Considerations
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When making contributions to an HSA, make them equal to what you think you will need for medical expenses for the year. Excess contributions are not easily removed from an HSA if the expense is not a medical one.
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