Both Health Savings Account (HSA) and Individual Retirement Account (IRA) have multiple benefits in your life. If you contribute steadily in these accounts, you can make a strong retirement portfolio. You’ll have a handful of advantages if you transfer funds from IRA to HSA. So, try to manage these two accounts tactfully to maximize your benefits.
First, let’s recollect few HSA rules:
- An HSA covers only those medical costs that aren’t covered under your health insurance plan. You’re eligible for an HSA if you have a high-deductible health plan (HDHP).
- Savings in an HSA has an above-the-line tax deduction. It means the IRS allows a taxpayer to make the deduction from his/her earnings for the taxable year before arriving at the adjusted gross income (AGI).
- Phaseouts aren’t there. As mentioned in Bankrate.com, “it doesn't matter how much money you make, you can still deduct the whole thing -- up to $3,400 for individuals in 2017. Contribution limits for families are $6,750 a year. President Donald Trump and Republicans want to expand limits on an HSA contributions to $6,550 for individuals and $13,100 for families. An additional $1,000 catch-up contribution is permitted for those 55 and older.”
Now, check out how to maximize benefits by transferring funds from IRA to HSA:
1. Meet medical emergency
You can rollover IRA assets to fund your HSA. But, this is a one-time transfer. In case you meet with some medical emergencies you can shift funds from your IRS to HSA. The IRS has a limit on the amount you can contribute in a year. However, if you’ve rolled out the maximum allowable, you won’t be able to contribute anymore. Also, there won’t be any tax penalties as long as you use the money on health care expenses.
2. No required minimum distributions (RMDs)
After reaching 70 ½ years of age, the IRS requires you to withdraw a minimum amount from your traditional IRA account each year. This is known as required minimum distributions (RMDs). If you move funds from IRA to HSA, you can continue to grow your money uninterrupted and tax-free.
3. Claim the benefit whenever you need
It’s not that you’ve to apply for the qualified medical expenses once you visit the doctor. You can let your funds grow tax-free in your HSA and claim the benefits later when you need the money. But, make sure you have all your medical receipts as proof.
As per the IRS, “you must keep records sufficient to later show that the distributions were exclusively to pay or reimburse qualified medical expenses, that the qualified medical expenses have not been previously paid or reimbursed from another source and that the medical expenses have not been taken as an itemized deduction in any prior taxable year."
4. Money is tax-free
An HSA is a threefold treat, that is, the money in an HSA goes in, grows, and goes out tax-free. Plus, the amount spends on health care expenses is also tax-free. If you have an HSA and you’re 65 years of age, you can use the dollars to pay the deductibles, copays, and premiums of Medicare parts A, B, C, and D, and out-of-pocket costs like dental and vision. You’ll have to pay taxes if you want to cover these expenses with your money from the IRA.
So, what are you thinking? Transfer your funds from IRA to HSA to avail these benefits now.Read more: Simple way outs for retirees to manage high medical costs 5 tips to minimizing health insurance costs