IRA rollover or transfer into HSA Account? | Ed Slott and Company, LLC

IRA rollover or transfer into HSA Account?

I understand the IRS allows a one-time rollover/transfer from an IRA account into an HSA account. My questions regard how this is treated on my 1040 tax filing. If it's done be "rollover", does it go into the "IRA distributions" line (15a) along with a $0 entry into line 15b , the same as if it were a rollover between IRA accounts...? If this is the case, then can I also take the "Health Savings Account deduction" on line 25 in "Adjusted Gross Income" for the amount transferred...? If the funds were moved via a "transfer" rather than a "rollover", which is not documented on lines 15a and 15b (or anywhere on the 1040 at all) as no "distribution" is involved, could the amount still be entered on line 25 as an HSA deduction...? Thanks...!

This one time transfer cannot be done by rollover, but must be done by direct trustee transfer, therefore it should not be reported on a 1099R or on your return. And since the IRA transfer is composed of pre tax dollars, there is no deduction to be claimed either. If a deduction were allowed, these dollars would have been deducted twice. The one time transfer may well not be worth the hassle. It reduces the amount of regular HSA contributions that you could make that would be deductible, so it does not result in added funds to your HSA if you could afford a regular HSA contribution. There is also a requirement that you maintain eligiblity for 12 months following the transfer or it becomes taxable and subject to penalty. That makes your transfer partially subject to outside forces including the insurance industry, possibly COBRA, etc.

CORRECTION: Although a mandatory direct transfer, the custodian will STILL report the Qualified HSA Funding Dist. on a 1099R, ie. no special reporting per 2007 1099R Inst. This will require the taxpayer to report it on line 15 of Form 1040, and the instructions for this are supposed to be in the 2007 1040 instructions. Perhaps it will be similar to a QCD, where the transfer is entered on line 15 with an abbreviation, but 15b should be -0-. Thanks to Denise Appleby for heads up on this one.

Thanks Alan, > Actually that's exactly the reason I looked for confirmation on this issue. It appeared to me this "new" law did absolutely nothing for anyone, unless that double deduction was INTENDED...! If you are only to get the single deduction, why not just take the taxable distribution from the IRA and the deduction on line 25 and be done with it under the old law....? You get exaclty the same result...! On second thought, there is one classification of individual who could benefit -- someone too young to take a normal distribution from his IRA. No help for me....! FWIW, I did finally find the statement on the IRS site that stated explicitly that NO deduction was allowed on this transfer.

Here's some more info on this starting on p 9 of the link: http://www.ataxplan.com/order/pdfs/IRAHSAxfers2.pdf
 

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