Can You Roll an IRA Into an HSA?
IRAs are Individual Retirement Accounts. HSAs are Health Savings Accounts. Both of these types of accounts defer taxes on the money inside of the account. However, IRAs serve a very different purpose when compared to an HSA. Even though these accounts serve a different purpose, you're able to roll some of your IRA money into an HSA.
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Purpose
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The purpose behind rolling an IRA into an HSA is that you fund the HSA with money that has never been taxed. This may help you start your HSA if you don't have any additional funds to open an HSA.
Significance
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The significance of funding an HSA with your IRA is that your retirement savings is funding your HSA. Additionally, the contribution from your IRA may be from your investment earnings inside of the IRA. This means that, if your IRA does well, your investments have funded your health savings account.
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Benefit
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The benefit of funding your HSA with an IRA is that your HSA account is limited in some respects. As long as you are funding your HSA with money from a traditional IRA, you maintain the tax benefits on the money being rolled over. You won't need to take any additional money out of your paycheck to open the account. Since the HSA is a tax-free account (as long as money is used for medical expenses), there are no additional tax liabilities for making the transfer.
Disadvantage
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The disadvantage to rolling money over to an HSA from your IRA is that the IRS only allows a one-time, lifetime, transfer. Also, you cannot move the money back to your IRA if you do not use the funds. You must withdraw the money and use it for health care expenses or withdraw the money for some other use, pay a 10 percent penalty on the money as well as pay ordinary income taxes.
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