IRA to HSA Conversion: Rules, Benefits & How-To

A Health Savings Account (HSA) can be a great way to pay for medical expenses with tax free dollars. Money from your Individual Retirement Account (IRA) can be transferred to a HSA to help get you started, but in most cases you can only do it once. And, as with most things concerning an IRA or other tax deferred account, special rules and conditions apply.

Things You'll Need

• IRA account
• High-deductible health plan
• Health Savings Account

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Instructions

• 1

  Apply for a high-deductible health plan. Because HSA accounts are used to fund high-deductible health plans (HDHP) which generally require you to pay more out of pocket than regular HMO or PPO health plans, make sure that a HDHP plan is right for you. If it is, apply for HDHP insurance from your chosen health insurance company.

• 2

  After applying for HDHP insurance, open a HSA account. This can usually be done with the insurance company providing your HDHP insurance, however, banks, brokerage firms and mutual fund companies also offer HSA accounts.

• 3

  Determine your maximum HSA contribution. Check with your account provider or other qualified professional to determine the maximum HSA contribution in the current year.

• 4

  Estimate your annual health care spending. Doctor visits, dental, vision and prescription drugs are examples of eligible expenses.

• 5

  Transfer this amount from your IRA account to your HSA (up to the maximum HSA contribution amount).