How do I enter a 1-time distribution from my traditional IRA to my HSA so I don't incur any taxes or penalties?

[ERA]

I am within the HSA contribution limits.

[dmertz]

Enter the Form 1099-R exactly as received under Wages & Income (or Personal Income) -> Retirement Plans and Social Security -> IRA, 401(k), Pension Plan Withdrawals (1099-R).  In the questions that follow, indicate that you "did something else with the money," i.e., you did not roll the money over to another retirement account.  Next, answer Yes, you put the money into an HSA, then enter the amount that was sent to the HSA directly by the custodian of the IRA.  Finally, complete the HSA contribution section to establish your eligibility for an HSA contribution.

[BMcCalpin]

This is an excellent description of how to enter your 1099-R that represents a funding from a traditional IRA to your HSA.

Only one concern: if in the 1099-R interview, you don't see this question ("Next, answer Yes, you put the money into an HSA"), it's because TurboTax was not aware that you had an HSA at the time that you entered the 1099-R.

If you had an HSA last year on your TurboTax return or if you entered your W-2 with a "W" in box 12 or if you entered the HSA interview before you entered the 1099-R, then TurboTax would have known that you had an HSA and given you this question in the 1099-R dialogue. I mention this just in the off chance that you don't see this question in the 1099-R interview when you would expect it.

[ERA]

Thank you very much. I typically have Turbotax auto-fill my information from Fidelity. Following your suggested instructions, will Turbotax know to NOT count the IRA distribution as income, and NOT add a 10% penalty for the early distribution?

[ERA]

Thank you; Yes, Turbotax knows that I have an HSA.

[dmertz]

BMcCalpin's concern is unwarranted.  Except in the case where one indicates that the entire distribution from the traditional IRA was rolled over or Roth-converted (in which case there is no amount that could have been transferred to an HSA), TurboTax will always ask the HSA question when entering a Form 1099-R for a regular distribution from a traditional IRA.

If you don't see the question asking if you put the money into an HSA, you haven't entered a distribution that is permitted to be treated as an HSA funding distribution (HFD).  You can still put the money into an HSA, but instead of being excludible from income and therefore exempt from any early-distribution penalty, the distribution will be includible in income, subject to early-distribution penalty and reportable as a regular deductible personal HSA contribution, not as an HFD.

[Critter]

Even if you auto fill (import) the 1099-R info you still MUST complete all the follow up screens in that section ... do NOT skip them.

[BMcCalpin]

@dmertzmy concern is warranted, because in the past I have had one or more test cases in which the HSA question in the 1099-R interview did not appear. I knew that I remembered this, but then I found in my trove of answers an answer that specifically referred to this, which I would not have done had I not had a test case that showed this.

I suspect that the difference between your experience and mine is that you use the desktop software and I use both the desktop software and the online software (because I believe that a large majority of the TurboTax users use the Online product). Unfortunately, because we are after October 15th, I cannot reproduce the issue with a fresh return, so we will have to wait until the 2019 Online system is available for me to try it out again.

Of course, it is also possible that the workflow of the software changed from year to year - at this point, I have no way of telling. So we are at an impasse: I am pretty sure that some version of the software at some point behaved this way, but I can't prove it. Oh, well, that in no way detracts from your answer.