Q. Can I make a tax-free rollover from my IRA to a Health Savings Account (HSA), and what are the rules, current maximum amounts and New Jersey tax implications?
A. Health Savings Accounts (HSA) can be a great planning tool that saves your tax dollars.
As long as you follow the rules.
So before we answer your specific question about rollovers, let’s start at the very beginning.
An HSA is a is a tax-exempt trust or custodial account you set up with a qualified HSA trustee to pay or reimburse certain medical expenses you incur, said Bernie Kiely, a certified financial planner and certified public accountant with Kiely Capital Management in Morristown. You must be an eligible individual to qualify for an HSA.
No permission or authorization from the IRS is necessary to establish an HSA. Instead, you set it up with a trustee. A qualified HSA trustee can be a bank, an insurance company, or anyone already approved by the IRS to be a trustee of individual retirement arrangements (IRAs) or Archer Medical Savings Accounts, Kiely said. The HSA can be established through a trustee that is different from your health plan provider.
“An HSA may receive contributions from an eligible individual or any other person, including an employer or a family member, on behalf of an eligible individual,” Kiely said. “Contributions, other than employer contributions, are deductible on the eligible individual’s return whether or not the individual itemizes deductions.”
Employer contributions are not included in income, he said, and distributions from an HSA that are used to pay qualified medical expenses are not taxed.
To be an eligible individual and qualify for an HSA, Kiely said you must meet the following requirements:
• You must be covered under a high deductible health plan (HDHP) on the first day of the month.
• You have no other health coverage that is not a high deductible health plan.
• You are not enrolled in Medicare.
• You cannot be claimed as a dependent on someone else’s 2014 tax return.
The amount you or any other person can contribute to your HSA depends on the type of HDHP coverage you have, your age, the date you become an eligible individual, and the date you cease to be an eligible individual, he said. For 2015, if you have self-only HDHP coverage, you can contribute up to $3,350. If you have family HDHP coverage, you can contribute up to $6,650.
“You can roll over amounts from Archer Medical Savings Accounts and other HSAs into an HSA,” he said. “You do not have to be an eligible individual to make a roll-over contribution from your existing HSA to a new HSA.”
Plus, he said, rollover contributions do not need to be in cash and they’re not subject to the annual contribution limits.
You must roll over the amount within 60 days after the date of receipt. You can make only one rollover contribution to an HSA during a 1-year period.
The rules make no provision for rolling over an IRA into an HSA, Kiely said.
For more information see IRS Publication 969: Health Savings Accounts and other Tax-Favored Health Plans.
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