How To Transfer IRA Funds to an HSA

Thanks to the Health Opportunity Patient Empowerment Act of 2006, it is possible to move money from an individual retirement account (IRA) to a Health Savings Account (HSA) without paying any taxes or penalties. This rollover, which can be done once, is known as a qualified HSA funding distribution. It allows you to cover more healthcare expenses tax free for you or a family member.

While there are no taxes or penalties involved in this type of distribution, there are restrictions on who can do it and when. You must be eligible to contribute to your HSA in order to make a rollover from your IRA, remain eligible for a year after the rollover, and keep the distribution within HSA contribution limits.

What Is a Health Savings Account (HSA)?

A Health Savings Account (HSA) is a tax-advantaged savings account that allows you to set aside pretax money for healthcare expenses, including dental and vision care. Money can be withdrawn and spent from the account tax free and penalty free as long as you spend it on qualified healthcare expenses.

To contribute to an HSA, you must be enrolled in a high-deductible health plan (HDHP), which is a health insurance plan with an annual deductible of at least $1,650 (individual coverage) or $3,300 (family coverage). Generally, contributions to an HSA are taken from your paycheck; the maximums you can contribute in 2025 are $4,300 (individual) or $8,550 (family).

If you withdraw money from an HSA before age 64 for expenses that are not qualified healthcare costs, you will have to pay both taxes and penalties on the money. However, you never lose the money in an HSA; it will simply roll over to the next year indefinitely, even if you change jobs or health insurance plans. If you no longer have an HDHP, you can invest the money in the account and keep it until retirement.

Once you reach age 65, you can withdraw money penalty free from an HSA for any reason. However, nonmedical withdrawals will be taxed at your current income rate; withdrawals for medical expenses remain tax free.

Understanding IRA-to-HSA Rollovers

An IRA-to-HSA rollover is one of the ways that you can fund your HSA, and it can be done once in your lifetime. This can have tax benefits for you if you use the money to pay for qualified healthcare expenses.

To move funds from your IRA to an HSA, you must be currently eligible to contribute to your HSA. That means you need to be covered by a high-deductible health plan. Your rollover counts toward your annual HSA contribution limits.

If you have already made HSA contributions for the year, your contributions plus the amount you move from your IRA cannot be more than the annual limit. In 2025, these limits are $4,300 for individual coverage or $8,550 for family coverage (the coverage you have on your health plan). You can make an additional catch-up contribution of $1,000 if you are age 55 or older.

If you make a qualified HSA funding distribution when you have individual coverage, then later switch to family HDHP coverage, you can make a second qualified HSA funding distribution for the remaining amount.

Because a qualified HSA funding distribution can only be done once in your lifetime, it may make sense to wait until you are 55 or older to take advantage of the additional $1,000 allowed as a catch-up contribution. A financial advisor who specializes in retirement and tax planning can help you determine what timing will make the most sense for you.

Rollovers From Other Types of Retirement Accounts

It is possible to fund your HSA with money from another type of retirement account, such as a 401(k) or 457 plan. However, these funds must first be rolled into an IRA. At that point, they become available for a one-time, tax-free distribution into your HSA.

To avoid accidentally incurring penalties from this type of two-step rollover, it is best to work with a financial advisor.

Tax Implications

Rolling over money from a traditional IRA to an HSA can save you money in two ways:

1. If you or a family member will need expensive healthcare that you wouldn’t otherwise have the money to cover, a qualified HSA funding distribution can allow you to tap into money saved in your IRA without having to pay taxes or penalties for an early withdrawal.
2. If you keep your HSA into retirement and use it for healthcare expenses, you won’t have to pay taxes on the funds in the account. If you spend them directly from a traditional IRA, on the other hand, withdrawals will be taxed as ordinary income.

Testing Period and Penalties

If you don’t plan to stay enrolled in your high-deductible health plan for at least 12 months after you make a qualified HSA funding distribution, the rollover can get expensive quickly. That’s because a qualified HSA funding distribution includes a 12-month testing period after the transfer, during which you must remain eligible for your HSA. This means you have to stay enrolled in your HDHP for at least a year after your rollover.

If you switch health plans to a non-HDHP, the money that you rolled into your HSA will suddenly count as income. You will need to include it on your tax return and pay income taxes on the distribution. The amount will also be subject to a 10% penalty.

Considerations for Those Approaching Medicare

The testing period for a qualified HSA funding distribution requires you to stay eligible for an HSA for one year. This can create problems for anyone about to get coverage through Medicare because your HSA contribution limits drop to zero beginning in the first month you enroll in Medicare.

If you enroll in Medicare less than one year after rolling over contributions from your IRA to your HSA, your contributions will fail the testing period and be considered income in the year you make the distribution. This rule also applies to any retroactive Medicare coverage. If you delay enrollment and then your coverage is backdated to a time within the testing period, your contributions will still count as income for that year.

To avoid any taxes and penalties, make any transfer from your IRA to your HSA more than a year before you plan to enroll in Medicare. A financial advisor can help you find the best timing for your situation.

Steps to Make an IRA-to-HSA Rollover

A qualified HSA funding distribution must be performed by the person who owns both the IRA and the HSA. It is conducted as a trustee-to-trustee transfer. If you withdraw the money from your IRA and then make a contribution to your HSA, this is an indirect rollover and doesn’t count as a qualified HSA funding distribution.

To make sure you follow all the steps properly, contact your HSA provider first to get any special instructions. Then share these instructions with your IRA provider. If the accounts are held through the same provider or brokerage, they will likely already have these steps accounted for. You may also want to talk to a financial advisor first to make sure you have properly considered all the tax and penalty considerations that you need to be aware of before you make the rollover.

Once you’ve made the distribution, it will be reported to the Internal Revenue Service (IRS) on Line 10 of Form 8889, Health Savings Accounts (HSAs). This will be attached to your Form 1040 income tax return.

The Bottom Line

A qualified HSA funding distribution allows you to make a one-time rollover from your IRA to your HSA, providing tax benefits into retirement as long as you use the funds for qualified healthcare expenses.

To avoid taxes and penalties, make sure that your rollover is within annual HSA contribution limits. You will also need to remain eligible to make HSA contributions for one year after the rollover to avoid having the distribution count toward your regular income. To ensure that your qualified HSA funding distribution goes smoothly, consult a financial professional who specializes in tax and retirement planning first.