Simple IRA to Roth IRA
My employer Simple IRA is now of 2 years duration. As a young investor in the 12% marginal bracket this would be initiated in 2022. Is there a preferred mechanism for transferring a percentage of this Saving Plan to my other tax -advantaged vehicles? Need this transfer first go to an IRA before conversion to Roth IRA? Is there an annual limit how many Simple IRA to IRA transfers may occur in a year?
Finally, 2022 may be the year for my one-time IRA to HSA roll-over. Does this then satisfy my HSA annual limit? That is, may I complete this roll-over AND contribute employer sponsored pre-tax HSA funds in the same year?
Thank you for your insights
Permalink Submitted by Alan - IRA critic on Sun, 2021-12-19 16:28
Once your 2 year waiting period is completed, there is no limit on how many distributions and transfers you can do. Conversions can be done by direct transfer from the SIMPLE IRA directly to the Roth IRA.
The qualified HSA funding distribution represents an optional source for HSA contributions you are already qualified to make. Instead of the usual deductible HSA contribution made with new money, the qualified HSA funding distribution comes out of the pre tax portion of your IRA, so there is no current year tax deduction, and the total value of your HSA and IRAs combined remain the same. It is better to make the usual HSA contribution to the extent your employer does not if you have the funds to do it. You cannot make an HSA funding distribution from an on going SIMPLE IRA. You would have to first transfer it to a TIRA before doing the funding distribution. Note that the funding distribution is reported as a rollover, but must be done by direct transfer. This transfer does NOT count against the one rollover limit per 12 months.
If your HSA is employer funded, the amount contributed by the employer reduces the amount that you can contribute and deduct yourself, or the amount that can be tranferred from your IRA. As such, there are 3 possible sources to fund your annual HSA contribution limit, and there is no way to increase your HSA contributions above that contribution limit. If your employer will make a meaningful employer contribution to your HSA, there is no sense in wasting your one time HSA funding distribution for a small difference between what the employer contributes and your HSA contribution limit.
Permalink Submitted by William Tuttle on Sun, 2021-12-19 19:56
I would just like to amplify Alans HSA resposes. You should almost never do an IRA HSA funding distribution unless you have absolutely no other source of funding the HSA.
You should never do an IRA HSA funding distribution after the age of 59 1/2. With the previous caveat and no early withdrawl penalty, you can simply withdraw the the money and make new HSA contributions and not be subject to the 12 month testing period.
Permalink Submitted by tomtom on Mon, 2021-12-20 01:19
Your insights are most appreciatedThank youOn a Sunday afternoon no less!-take the rest of the day off…