Dmertz:
Thank you for your response and interest. It is appreciated. Not sure if turbotax doesn’t allow this, since that would be contrary to the provisions of the Internal Revenue Code, wherein it is specifically authorized. Additionally, there is no “code” in box seven of the 1099-R for an IRA to HSA transfer. Moreover, I was able to “get it to work” even though, it admittedly seemed a bit odd (see my prior post). Perhaps, the Intuit Gods can weigh in and provide clarification, but not going to hold my breath.
Regardless, I am not quite sure I follow your logic. Whether the Taxpayer chooses to utilize the “once in a lifetime transfer” from IRA to HSA or chooses to take the amount as an “above the line” deduction, they both reduce their Adjusted Gross Income by the same amount. The “once in a lifetime” Taxpayer does it by exclusion, the other Taxpayer does it by deduction.
Thus projecting the future, I give you a scenario based on the following assumptions:
Assumptions: Both Taxpayers are similarly situated, that is:
1) Both Taxpayers (TP) have the same amount of income and are in the 15% Capital Gains Rate and are 55 years of age and eligible for once in a lifetime transfer from IRA to HSA; further both TP have a long term capital gain in a traditional IRA of $4,500.00 and transfer $4,500 to their HSA;
2) Both TP earn 5% on their investment; and, invest the same amount of money in the HSA at the same time (a full year in year one); and,
3) Neither TP withdraws money from their HSA for five years.
At the beginning of year one, the TP who choose to deduct the contribution is subject to Capital Gains tax at 15% and now has $3,285 to put in her HSA. Over the five years she earns $ 1,056.78 and her HSA is now worth $4,881.78.
Alternatively the TP who choose to make a “once in a lifetime” puts the entire $4,500 in her HSA. Over the five years she earns $1,243.27 and her HAS is now worth $5,743.27.
Thus, by taking advantage of her “once in a lifetime” contribution to HSA via the IRA the TP who choose that vehicle has outgained the other TP by nearly 18%! (By the way, in case you’re wondering I utilized Bankrate’s savings calculator for the earnings calculations, not mine, you would not want that).
Besides this argument I make a more “intuitive” observation; that is, Congress knew it was going to reduce revenue when they created a “once in a lifetime” transfer from IRA to HSA and that is exactly why they proscribed it being only “once in a lifetime.” Am I missing something?
Yours Truly,
Snake
