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Robert Bloink and William H. Byrnes

Life Health > Health Insurance > HSAs

How to Supercharge an HSA With an IRA Rollover

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What You Need to Know

  • An IRA-to-HSA rollover can help a client looking for a tax-preferred way to cover a large medical expense.
  • This move can be done only once in a lifetime.
  • In 2022, rollovers are limited to $3,650 for a client with individual HDHP coverage or $7,300 for those with family coverage

Health savings accounts provide a powerful option for taxpayers looking for tax-preferred ways to fund health care expenses — both today and in the future.

The client funds the HSA with pretax dollars to reduce taxable income, and, if the HSA funds are used to cover health care expenses, the withdrawal is also tax-free.

However, many clients may not have the cash to contribute to the HSA in today’s inflationary environment. They may also be unaware of a little-known HSA funding rule that allows the client to make a rollover from the client’s IRA into the HSA. 

Still, the rules for IRA-to-HSA rollovers are detailed and the strategy isn’t ideal for every client.  Because of that, as always, it’s important for every client to be aware of the pros and cons of the strategy before executing the rollover.

IRA-to-HSA Rollovers: The Basics

First and foremost, clients should understand that they are only permitted to execute an IRA-to-HSA rollover once in a lifetime. That’s true regardless of whether the client continues to be eligible to fund an HSA from other sources of funding.

The most the client can roll over in any given year is the annual HSA contribution limit. In 2022, those limits are $3,650 for self-only coverage and $7,300 for clients with family high-deductible health plan coverage (in 2023, those limits increase to $3,850 and $7,750). Clients who have reached age 55 are entitled to make an additional $1,000 catch-up contribution.

Further, clients should know that the strategy is only available for deductible IRA funds. That means clients can’t roll over after-tax or nondeductible IRA contributions, only IRA funds contributed with pretax dollars. The strategy also isn’t available for 401(k)s — although the client could consider rolling 401(k) funds into an IRA before rolling the funds into the HSA.

Which Clients Should Consider This HSA Funding Strategy?

HSAs are a type of triple tax-preferred vehicle. The HSA is funded with pretax dollars, the funds grow tax-deferred and distributions are tax-free if used to cover qualified health expenses. So, with proper planning, the tax benefits of HSAs can exceed the benefits of a traditional IRA (where distributions are taxed as ordinary income).

Most of the time, clients might consider the IRA-to-HSA funding strategy if they are eligible for an HSA, but don’t have enough money to fund it without accessing retirement dollars.  

In other words, clients who have enough income to fund both the IRA and the HSA should fund both accounts with non-IRA dollars rather than executing the rollover. Funding with “outside” money allows the client to receive the maximum tax deduction for the year. Essentially, HSA account holders are trading one tax-favored account for another when they execute the IRA-to-HSA rollover. 

However, a client who incurs large medical expenses before they have time to build up an HSA balance may be interested in funding an HSA with an IRA if the client would otherwise be required to take an IRA distribution to cover those expenses. This rule allows the client to avoid paying taxes and penalties on an IRA distribution necessary to pay medical expenses.

Clients should also remember that if they have both deductible and nondeductible IRA contributions, rolling the deductible contributions into an HSA can allow them to increase the percentage of nontaxable IRA funds.

While the client can fund the HSA with Roth IRA funds, it’s important to remember that earnings on a Roth grow tax-free over the years. And, because the HSA rollover must be accomplished with taxable dollars, those gains would be rolled over into the HSA — so the client would receive very little benefit.


While HSAs are a powerful tax savings tool, the reality is that many clients may not have the money to fund both a retirement account and an HSA. Those clients might consider the IRA-to-HSA rollover strategy, especially if they’re facing large medical expenses and looking for a tax-preferred way to pay those medical bills.

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