Q: Can I use money from my IRA to fund my HSA?

By December 2, 2009November 18th, 2015Frequently Asked Questions

A:  Yes, beginning with tax year 2007, you may make a one-time contribution to your HSA of an amount distributed from your IRA. However, the contribution must be made in a direct trustee-to-trustee transfer. Amounts distributed from your IRA will not be included in your income to the extent that the distribution would otherwise be included in income. Therefore, such distributions are not subject to the 10 percent additional tax on early distributions.

The following rules apply:

  • The amount that can be distributed from the IRA and contributed to an HSA is limited to the maximum contribution to the HSA computed on the basis of, individual vs. family coverage under the HDHP at the time of the contribution.
  • The amount that can be contributed to the HSA is reduced by the amount contributed from the IRA.
  • No deduction is allowed from the amount contributed from an IRA to an HSA.
  • You are allowed only one distribution and contribution during your lifetime, except if a distribution and contribution are made during a month in which you have individual coverage as of the first day of the month. An additional distribution and contribution may be made during a subsequent month within the taxable year in which the individual changes to family coverage. The limit applies to the combination of both contributions. 
  • If you don’t remain an eligible individual in accordance with “The 12 Month Rule,” the amount of the distribution and contribution will be included in your gross income. “The 12 Month Rule,” or testing period, is the period beginning with the month of the contribution and ending on the last day of the 12th month following such month. The amount will be included for the taxable year of the first day during the testing period that the individual is not an eligible individual. A 10 percent additional tax also applies to the amount included.
  • An exception applies if the individual ceases to be an eligible individual due to death or disability.