IRA to HSA rollover

[pelocampo]

Sorry! Vike55, not Dawn.

[Nancy D]

You should not have to enter the transfer on form 8889-T. Once you enter the amount in the insurance section on your 1099-R using Turbo Tax Desktop, it will automatically flow through to form 8889-T on lines 9A and 10.   Once I entered the amount in the 1099-R, my taxes did change. 

[pelocampo]

Hi Nancy, I just figured out where I went wrong. I changed the 1099-R Line 5 (Employee contributions/Designated Roth contributions or insurance premiums) by mistake. Further down on the form inside TT is a section called "Insurance" and I entered my transfer to the "Amount of health savings account (HSA) funding distributions" line. Then the taxes changed correctly. So it was my misunderstanding of the direction from others - I have written it out in painstaking detail here for anyone who follows with the same question.

I do have to point out that, if the online version asks this question in the interview and the desktop version does not, it is a bug in TT that should be easily and quickly corrected. There should be no reason to manually alter the forms whatsoever if TT is operating correctly.

In any case, this was my last hurdle to complete my taxes and I am now DONE! Next year, I will keep a log of how much time my taxes take, even with the help of TT. I know it was more than 80 hours this year.

[Nancy D]

Glad you got it to work. Yes, the insurance section is further down on the 1099-R form. Hopefully TT Employees are monitoring these posts and making the necessary changes to the desktop version.

[philmilich]

I wish I could tell you how we did it, but I spent several hours over two days with 3 different TT CPA's before we got it correct. I was doing a once in a lifetime IRA to HSA tax free rollover.

[Vyn23]

@SamS1 

Do you have a citation/source for your claim that you have to be 55 to do a Qualified HSA Funding Distribution? You have to be 55 to be able to make the additional $1k catch-up contribution, but as far as I'm aware there is no minimum age for being able to make a Qualified HSA Funding Distribution from your IRA. (Maybe the rules have changed in the last two years??)

[BillM223]

No, there is no requirement that the taxpayer be 55 years old in order to do the qualified HSA funding distribution. However, there are two limits that will affect you: you are allowed to do this only once in your lifetime, and the amount of the distribution counts against your annual HSA contribution limit.

This means that the QFD is not as useful as it might seem - it basically means that you can make one year's worth of HSA contributions from an IRA rather than out of pocket, and that's it. And for the twelve months after the QFD, you have to stay under HDHP coverage or be penalized. See page 7 of IRS Pub 969 for examples.

[Vyn23]

@BillM223 , 

Thank you, your entire reply confirms my understanding. I noticed in reading this thread that @SamS1 mentioned in multiple comments that you had to be 55, which I didn't believe was correct. Since I didn't see that anyone else had challenged them, I figured I would. 

Thanks again!

[dmertz]

The only effect that being age 55 has on an HSA Funding Distribution is that at age 55 your HSA contribution limit increases.  Of course that applies no matter how you fund contributions to your HSA.

[wildgrassroots]

Is it true that an individual must maintain a high-deductible health plan (HDHP) following a rollover/distribution into an HSA?  Would like to know if this applies specifically to ALL HSAs, even those being maintained through banking institutions. Thanks!

[DawnC]

Yes.  You can move funds from an IRA to an HSA only if you're eligible to contribute to your HSA.   In other words, you need to do the transfer while you're covered by an HDHP and are otherwise qualified to have an HSA.   @wildgrassroots 

[wildgrassroots]

@DawnC Thank you for the quick response, I appreciate it. Unfortunately, I moved funds from my IRA into my HSA not knowing these rules, and am now looking at a 10% tax penalty.  Ouch. Would have been nice if the bank had checked my eligibility prior to processing that transaction. Suppose I could transfer at least some of the funds back to avoid the penalty? 

[BillM223]

"Is it true that an individual must maintain a high-deductible health plan (HDHP) following a rollover/distribution into an HSA?  Would like to know if this applies specifically to ALL HSAs, even those being maintained through banking institutions."

Yes, the year following the rollover is called the "testing" period, and you must have HDHP coverage for that year or be penalized.

"Would have been nice if the bank had checked my eligibility prior to processing that transaction."

Everything to do with HSA puts the onus on the taxpayer - the bank does not know enough about your situation to be able to tell you if you are making a mistake or not. Only if you consulted with your tax professional through the year.

"Suppose I could transfer at least some of the funds back to avoid the penalty? " - Probably not. On what date did you make this rollover?

[wildgrassroots]

@BillM223 I take full responsibility for that transaction. Last... June... give or take. It was a rather large amount, to pay for medical expenses. I was thinking I could avoid the early withdrawal fee from my IRA by transferring to my HSA but neglected to read the full regulations. Lesson well learned.