"The probably better option would be to report this as an HFD on your 2024 tax return, provided that you will remain HSA eligible throughout 2024 and 2025, making sure that the HSA custodian records this as an HSA contribution for 2023, then separately make an ordinary personal HSA contribution for 2023 using non-IRA funds."
Thank you for the reply. I am 62. Did you mean "2024" where I have bold italicized? I would then try to change the HSA contribution to 2024 to match the IRA distribution. I believe one can undo the whole thing before April 15, paying tax on the "other income" generated in the interim and funding the HSA from other cash for 2023, as you suggest.
I didn't in the IRS instructions there is no specific indication of prohibition to applying the one time IRA distribution as a prior year contribution.
"Qualified HSA funding distribution.
A qualified HSA funding distribution may be made from your traditional IRA or Roth IRA to your HSA. This distribution can’t be made from an ongoing SEP IRA or SIMPLE IRA...
The maximum qualified HSA funding distribution depends on the HDHP coverage (self-only or family) you have on the first day of the month in which the contribution is made and your age as of the end of the tax year. The distribution must be made directly by the trustee of the IRA to the trustee of the HSA. The distribution isn’t included in your income, isn’t deductible, and reduces the amount that can be contributed to your HSA. The qualified HSA funding distribution is shown on Form 8889 for the year in which the distribution is made.
You can generally make only one qualified HSA funding distribution during your lifetime. However, if you make a distribution during a month when you have self-only HDHP coverage, you can make another qualified HSA funding distribution in a later month in that tax year if you change to family HDHP coverage. The total qualified HSA funding distribution can’t be more than the contribution limit for family HDHP coverage plus any additional contribution to which you are entitled."
The confusion for me are the words they use: "for the year in which" not "in the year year for which", this is why I thought it was possible and was not told I was wrong by the IRA holder who facilitated the transfer after direct conversation.
Thanks again.
