How to Roll Over a Traditional IRA Into an HSA
Perhaps you have an existing traditional IRA at your local financial institution and have decided that you need the money more for medical expenses. This might be the case if you also have a high-deductible health insurance plan. The good news is that, no matter what your age, you can withdraw from your IRA for qualified medical expenses; and in this case, there is no better place to put the money than a Health Savings Account, or HSA.
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Instructions
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Find out if the institution carrying your IRA also offers HSAs. Not everyone realizes that many banks are now providing HSAs to encourage a preference for high-deductible health-insurance plans. These plans cost employers less to provide and ultimately save companies millions of dollars in health-care expenses for their employees. Health Savings Accounts grow with a healthy rate of interest, and your withdrawals for qualified medical expenses are tax-free. In the event you earn less than $100,000 annually, your employer may also be more than willing to contribute to your HSA, as it provides tax advantages for your company as well.
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Be sure of your decision. New law allows for a one-time IRA rollover "exemption," meaning you may contribute to an HSA with IRA funds only one time without incurring taxes or penalties. Once you have decided to do this, go to your banking center and apply for an HSA, explaining that you wish to change the status of your IRA. Your banker will have all the necessary paperwork for you to fill out and sign, as well as a detailed explanation of the tax implications on both accounts.
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Ask questions. Your banker should be qualified to discuss any tax implications or IRS penalties involving both accounts. Most banks have an IRA specialist on staff. In the case of small-town institutions, the banker may call the home office while you are present to speak to the IRA specialist there. This will ensure that all of your questions and concerns are addressed.
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Remember the purpose of the HSA. A Health Savings Account is an excellent resource for covering prescription costs, doctor's visits or even over-the-counter medicines you need to purchase. Each time you make a withdrawal from the account, you will need to fill out an HSA distribution form, which the bank will have on hand for you. The bank will not ask you what you are spending the money on, but you must keep your receipts for IRS reporting. If you choose to use the money for any other purpose and cannot account for 100 percent medical spending, you could face fines and penalties.
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Contribute regularly. As with any tax-advantaged account, the higher your balance, the better the rate of interest. While some medical expenses are not foreseeable, you should know how often you need to buy aspirin, prescription medications or even contact-lens solution. Determine what your regular monthly medical expenses might be and contribute accordingly. When you have extra funds from time to time, it is always a good idea to make an HSA contribution. As the money grows and earns interest, you may be well covered in the future for the unexpected.
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