Questions and Answers

IRA custodians/trustees report a qualified HSA funding distribution based on an individual’s age, either younger than age 59½ or already age 59½.

The instructions for filing IRS Form 1040 indicate how an IRA owner reports this to avoid tax on the transaction.

An HSA owner may take a one-time (once-in-a-lifetime) traditional or Roth IRA distribution to fund an HSA (a qualified HSA funding distribution). These contributions are considered regular, current-year HSA contributions and therefore cannot exceed an HSA owner’s contribution limit for the year. They also reduce the amount an individual may otherwise contribute to an HSA for the year and are not deductible HSA contributions.

This provision does not apply to distributions from SEP or SIMPLE IRAs.

The IRA distribution is tax free as long as an HSA owner remains an eligible individual through the last day of the twelfth month following the month of the HSA contribution.

Failure to remain an eligible individual for this entire time subjects the IRA-funded amount to income tax and a 10 percent penalty tax in the tax year he/she becomes ineligible. However, no income tax or penalty tax applies if loss of eligibility is due to death or disability.