Don't Mess With Taxes

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Health and retirement are inextricably linked, and not just when we talk about staying in good shape in order to enjoy post-work years more fully.

The link also is evident in the tax code, notably with the tax benefits of health savings accounts, or HSAs, that I blogged about last week. An HSA starts as a way for high deductible health plan enrollees to save tax-free for medical expenses, and then can morph into retirement funds when the account owner is older.

In doing research for that HSA post, I ran across another retirement connection to the medical savings option. A lesser-known tax rule allows for the rollover of funds from an individual retirement account (IRA) into an HSA.

IRA + HSA isn't simple math: This is known as a qualified HSA funding distribution. But before you get too jazzed about this move, Kelley C. Long has this caution —

"…this provision is less exciting than it might sound at first, and like all things HSA-related, it can get complicated."

Long, a CPA/PFS, CFP, and personal financial coach in Tucson, Arizona, writes about those complications in a recent Journal of Accountancy (JoA) article, The ins and outs of IRA-to-HSA rollovers.

It's also this weekend's Saturday Shout Out.

As Long notes, it's not a quick and easy process. She shares a couple of key considerations early in her JoA piece —

"The most important thing to know about a qualified HSA funding distribution is that it is a once-in-a-lifetime opportunity for each HSA account holder. The second most important thing to know is that the maximum amount of the rollover is limited to the amount of that year's HSA contribution limit."

If you have both an HSA and an IRA and this merging of the two sounds interesting, I leave you to check out at your leisure Long's article for the rest of the factors involved in such a transaction.

You also might find these items of interest:

• HSAs, the champion when it comes to tax break multitasking
• IRS announces 2023 inflation hikes for HDHPs, tax-favored HSAs
• No more unexpected medical bills, permanent 7.5% itemized healthcare costs threshold

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