Unlocking Financial Growth with IRA to HSA Transfers

Health Savings Accounts, or HSAs, are one of the most powerful retirement planning accounts out there. However, they’re highly underutilized. In fact, many people aren’t sure how to fund an HSA. There are some little-known strategies on how you can fund an HSA directly from your IRA. Keep reading to learn more about HSAs and the benefits of funding yours through an IRA to HSA transfer! 

The HSA Explained: Uses & Benefits 

The HSA is a wonderful planning tool that many people don’t take advantage of. If you have a high-deductible health insurance plan, chances are you qualify for an HSA, whether through your employer or outside an employer. In 2024, if you’re a single-filer, you can contribute up to $4,150 this year. If you have a family plan, you can contribute up to $8,300. If you’re over the age of 55, you can make a catch-up contribution of $1,000 as well.

There are three benefits of an HSA. First off, when you contribute to your HSA, you get a tax deduction. Secondly, your money will grow tax-deferred through the years. Finally, if you use your HSA to pay for qualified medical expenses, it comes out tax-free as well. Over the years, you can invest this money and watch it grow. Because of this, you can use your HSA to fund your future retirement income.

Lots of people follow this strategy, stockpiling their HSA with the intention of using that money to boost their tax-free retirement income down the road. In short, you keep track of your qualified medical expenses throughout the years. Instead of covering those expenses with your HSA when the expenses arise, they keep a record of all qualified expenses and reimburse themselves retro-actively in retirement with a tax-free portion of their HSA. This can be done as one lump sum or as distributions for retirement income.

Funding Your HSA with IRAs

As you’re planning how to fund your HSA, you might be thinking about pulling money out of a brokerage account or bank. However, another way to fund your HSA is through your IRA. You can take money in your IRA, which you’ve already taken a tax-deduction on, and do a once-in-a-lifetime transfer out of the IRA in a given year for the annual maximum. To be clear, you will not get a tax-deduction on the amount of your IRA to HSA transfer, since you already got a tax-deduction on that money when it entered your IRA.

This can be a powerful strategy for people who are getting close to retirement, have a lot of money in IRAs, and are thinking about how they’ll get some of that money converted in the future to have more control over their taxes. An IRA transfer can be an excellent way to fund your HSA in the latter years of your working career. Although you can only do this strategy once, even if you have multiple IRAs, it is still a very powerful tool. Because it is a once-in-a-lifetime opportunity, we encourage you to consult with your CPA or fiduciary advisor on how to make the most of this strategy.

Maximizing Your Retirement with a HSA and REAP Financial

All-in-all, if you have access to an HSA, you should take advantage of it. It is one of the most powerful retirement planning tools on the planet, sometimes even called a “Super Roth,” because it is triple-tax advantaged. Converting dollars from an IRA to an HSA is a great strategy to get an extra annual contribution into your HSA, utilizing money you’ve already put away for your future retirement. If you want to maximize your retirement planning in other ways, you should check out our 10 Retirement Tips Planning Guide! In that free guide, we cover this strategy and others that will help you set yourself up for your future retirement. Simply email the REAP Financial team at retire@reapfinancial.com to request your free copy, delivered straight to your inbox!

REAP Financial | Austin Financial Planning & Austin Retirement Planning

Phone: (512) 249-7300

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REAP Financial

9414 Anderson Mill Rd #100

Austin, TX 78729


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