Qualified HSA Funding Distribution

[Dean64]

I inherited an IRA from my mother a few years ago.  I retired two years ago and I am 59 years old.  I have some significant medical bills on the horizon.  I have an HSA but have not contributed to the HSA since my retirement.  I am considering making a Qualified HSA Funding Distribution (QHSAFD) from the inherited IRA.  Is it allowed to make an QHSAFD from a non-spouse inherited IRA?

[Opus 17]

No.  The only thing you can do with the inherited IRA is withdraw money and pay the tax.  You can't convert it to another tax-free account in your name.  Also, you can only do a funding distribution if you are eligible to make HSA contributions, meaning you have a qualifying HDHP, and have no other medical coverage such as Medicare. 

If you are eligible to make HSA contributions, you could withdraw money from the IRA, pay the income tax, contribute an equal amount to the HSA from your own funds and take the tax deduction.  That would offset the tax on the withdrawal.  You just can't do it directly. 

[dmertz]

Even if you could do an HFD from an inherited IRA, it makes absolutely no sense to do so.  The only reason to do an HFD is to avoid an early distribution penalty, and there is already no early-distribution penalty on a distribution from an inherited IRA.  The same is true for someone over age 59½ wishing to fund their HSA with the proceeds of a distribution from their own IRA.

As Opus 17 indicated, in this situation you would simply make a distribution from the inherited IRA and make a regular deductible personal contribution to the HSA.  The deduction from the HSA contribution will offset the taxable income from the inherited IRA.