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Roll Retirement Money Into a Health Savings Account?

You can make a tax- and penalty-free transfer from an IRA to HSA, but it might not be a good move.

Can I roll over money from an IRA to a health savings account? Is it a good idea?

You can roll over money from an IRA to a health savings account without incurring taxes or penalties, but there are very specific rules and it may not be your best option. The size of the rollover is limited to the maximum HSA contribution for the year minus any HSA contributions you have already made for the year. For 2011, the maximum HSA contribution is $3,050 for self-only coverage or $6,150 for family coverage (plus an extra $1,000 if you’re 55 or older). To qualify for an HSA, you must have a health insurance plan with a deductible of at least $1,200 for self-only coverage or $2,400 for family coverage.

Rolling over funds from an IRA to an HSA can provide a tax-free source of money to cover big medical expenses or help you build up your HSA balance. But if you have enough cash, it’s better to make your full HSA contribution with new money because your contributions are tax-deductible and can be used tax-free for medical expenses. Then max out your IRA contributions for the year, too ($5,000 for 2011, or $6,000 if 50 or older by year-end), so you can make the most of both tax-advantaged accounts without having to raid your retirement fund. If you do want to make the rollover, contact both your IRA and HSA administrator and tell them that you want to make a direct transfer.

For more information about health savings accounts, see What to Know About Health Savings Accounts and Health Savings Account Answers. For more information about IRA limits, see The Basics of Roth IRAs.

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