IRA Rollovers to an HSA

This rule allows for a one time tax-free trustee to trustee transfer of IRA funds into an HSA, provided certain conditions are satisfied.

• The amount contributed to the HSA is subject to the maximum annual contribution limits. For 2007, the maximum annual contribution limit is $2850 for single coverage and $5650 for family coverage. Amounts transferred from the IRA plus any additional employer or employee contributions will be applied against the maximum annual contribution limit.
• The individual must be covered by an HDHP and remain an eligible individual for 12 months after the transfer. If not, the funds transferred will be treated as taxable income and subject to a 10% excise tax.
• Traditional and Roth IRAs can be rolled over to an HSA.
• SEP and Simple IRAs are excluded from rollover.

Examples

Sue has a single coverage under an HDHP and intends to contribute $2000 to her HSA. She also has an IRA with $800. Sue is able to roll her IRA funds into her HSA as the total of the two amounts does not exceed the maximum annual contribution limit of $2850.

Jill has single coverage under an HDHP and intends to contribute $2850 to her HSA (2007 maximum annual contribution limit) through paycheck deductions. She also has an IRA balance of $1200. Jill is not eligible to roll her IRA funds into her HSA if she contributes $2850 (the maximum annual contribution limit allowed) from her paychecks. However, Jill can transfer funds from her IRA to her HSA, if she lowers her paycheck contribution to no more than $1650.

What are the benefits of this change?

Individuals now have the opportunity to supplement their HSA funds with IRA funds. This provides individuals with another source to help cover their out-of-pocket healthcare expenses.

If you have questions, employers should contact their Humana Sales Representative.
Brokers should call Humana’s Spending Account Hotline at 800.281.6778.