IRA rollover to a HSA Reporting question
Hello, if a client takes a distribution from their traditional IRA to fund a HSA account, I know the distribution from the IRA will be coded as “aged based” but will there just be a 5498 showing the funds going into the HSA or is there another tax form that would be generated?
Thank.
Permalink Submitted by William Tuttle on Tue, 2021-03-02 18:48
Just because the client can do something, does not mean they should do something. Be very sure that an HSA funding distribution is the best option.
HSA funding distributions require HSA eligibility and take up valuable tax-deductible HSA contribution space. Sources other than tax-advantaged accounts should be used first.
HSA funding distributions are subject to the 12 month testing period.
If the client is >= age 59 1/2 and they only have tax-advantaged accounts to fund HSA contributions. They should simply take a taxable IRA distribution and claim an equivlent HSA deduction. This will be tax neutral and will not be subject to the 12 month testing period.
The client should only take an HSA funding distribution if they are <59 1/2 and only have tax-advantaged accounts available to fund HSA contributions.
Permalink Submitted by Alan - IRA critic on Tue, 2021-03-02 19:13
See above post regarding advisability of a QHFD. If considered beneficial see next point.
The HSA custodian reports the HSA funding distribution contribution in Box 2 of Form 5498 SA. The taxpayer also shows the funding distribution on line 10 of Form 8889. QHFDs are unique transactions. They must be executed by direct transfer, but unlike IRA to IRA direct transfers, they are reported on Form 1099R by the IRA custodian with no special coding, and reported by the taxpayer on lines 4a and 4b of Form 1040 with “QHFD” next to 4b. The 5498 SA is similar to a 5498 for an IRA, and the 8889 addresses both HSA contributions and distributions.