Can I Roll HSA Contributions Into a Roth IRA?
IRA accounts are made for retirement savings. HSA accounts are designed to help you pay for medical expenses. These two accounts serve two different purposes. While you can move money from an IRA to an HSA, you cannot move money back to your IRA account. There is only one way to move money from an HSA to an IRA.
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Process
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The process for moving money from an HSA to an IRA involves closing your HSA account or making a partial withdrawal. You must contact the bank where your HSA is located and tell them what you want to do. The bank will help you with the withdrawal of funds.
Significance
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The significance of moving money from your HSA to an IRA is that you are moving money from a tax-free savings account to a retirement plan. The Roth IRA accepts after-tax contributions, while an HSA accepts tax-deductible or pretax contributions.
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Benefit
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The benefit of moving money from an HSA to a Roth IRA is that you are adding money to your retirement savings. If you don't think you need this money in your HSA, then you get to potentially increase your future retirement income, because you may be contributing more money than you otherwise would to your Roth IRA. This is assuming that you are not already making the maximum Roth IRA contribution of $5,000 (if you're under age 50), or $6,000 (if you are 50 or over).
Disadvantage
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The disadvantage of moving HSA money to a Roth IRA is that you must pay income tax on the distribution from your HSA as well as a 10 percent penalty. This is because you are not using the money from your HSA for qualified medical expenses. The IRS only allows the HSA to remain tax-free if you use the money for health care expenses.
Considerations
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Consider keeping the money in your HSA account. Health care expenses can be unpredictable. If you have an HSA account, you probably also have a high deductible health plan. This plan has deductibles that have to be paid before the insurance company pays your medical bills. If you've lost your high deductible health plan, you should still keep your HSA, and you are allowed to by law. Once you turn 65, you may use your HSA account for expenses other than medical expenses. If you do, you pay income tax on the money, but you won't be subject to the 10 percent penalty. This is the only exception to the rule that you must use HSA money for medical expenses.
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