By Sarah Brenner, JD
Director of Retirement Education
Question:
Please explain the rules and qualifications for rolling over a portion of an IRA to a Health Savings Account (HSA).
Thank you,
Bill
Answer:
Hi Bill,
A Qualified HSA Funding Distribution (QHFD) is done by direct transfer from your IRA to your HSA. This transaction is not taxable or subject to the 10% early distribution penalty. The amount that can be transferred cannot exceed the amount you are eligible to contribute to your HSA for the year. The amount you can move will be reduced by any HSA contributions you have already made during the year.
You may only do one QHFD in your lifetime. There is an exception to this rule if you start out the year with self-only coverage and then later switch to family coverage. In that case, the additional amount can be transferred in the same year. Once you do a QHFD, you must remain eligible for the HSA for what is called the “testing period.” The testing period begins with the month of the HSA contribution and ends on the last day of the month, 12 months later. There are exceptions to the testing period for death and disability.
Question:
My current employer’s 401(k) plan includes a “still-working exception,” which will enable me to avoid having to take my required minimum distribution (RMD) from this plan. If I retire before year’s end, do I still qualify to take advantage of this, or do I need to be on the payroll through December 31?
Answer:
The only way to qualify for the still-working exception for this year is to work the entire year. If you retire at any point during 2026, including on December 31, 2026, you will have an RMD for 2026.
If you have technical questions you would like to have answered, be sure to submit them to [email protected], to be answered on an upcoming Slott Report Mailbag, published every Thursday.