Can You Rollover an HSA Into a Roth?
When you own a health savings account, or HSA, you own a savings account that provides money to you, tax-free, that can be used for paying health-care expenses. When you retire, you may find that you don't need this money any longer. Unfortunately, you can't simply roll it over into a Roth IRA tax-free. But, you can deposit the money into your Roth account.
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Process
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You must close your HSA and move the money to your Roth IRA. To do this, contact the bank where your HSA is held (if you have your HSA with an insurance company, contact the insurer). Then, tell them you want to liquidate the account. They will close the account and give you the money.
Significance
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When you use HSA money for expenses that are not qualified medical expenses, you must pay a 10 percent penalty plus ordinary income tax (if you are under age 65). You'll lose your HSA account and have to find another way to pay for your medical expenses. If you are retiring or receiving Medicare, then this will be of little concern to you. But, if you are still working, you will have to figure out how to pay your deductibles on the high-deductible health plan you have with your HSA or change health insurance plans with your employer, if possible.
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Disadvantage
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The disadvantage of moving money from an HSA to a Roth IRA is that the transfer is nothing more than a normal contribution. You pay income tax, plus a penalty on your HSA money. Additionally, you cannot contribute more than $5,000 to your Roth IRA each year ($6,000 if you are 50 or over). This makes this type of transfer very inefficient and limiting from a contribution and tax perspective.
Consideration
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Consider keeping your HSA. Once you turn age 65, you may make normal distributions from the account as you would a traditional IRA. The money won't be subject to a penalty after age 65, but you'll have to pay income tax on the distributions. Additionally, the IRS does not make HSAs subject to required minimum distributions like IRAs are.
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