Moving money from a traditional IRA to an HSA produce no immediate tax savings. Your HSA deduction will equal the income from the IRA withdrawal, i.e., if you withdrew $5,000 from a traditional IRA you would have $5,000 in income. If you contributed that to an HSA you would have a $5,000 deduction.
What an HSA will do:
- No minimum required distributions (RMDs). Unlike IRAs, you can keep money in an HSA until you die, so moving money into an HSA will lower the RMD amount for your IRA once you turn age 72.
- Medical expenses. If you don’t itemise your deductions and/or do not have enough medical expenses to itemise deduction, moving money into an HSA and using that to pay medical expenses will give you some tax savings because HSA earnings are tax free and part of the money you take out will be HSA earnings.
- IRA to HSA rollover. IRS also allows you to make a one-time rollover from an IRA to an HSA up to maximum amount of your HSA contribution for that year so you can make one tax-free transfer.
