IRA to HSA transfer
In looking through the IRS Notice 2008-51, I noticed the following:
“After the death of an IRA or Roth IRA account owner, a qualified HSA funding distribution may be made from an IRA or Roth IRA maintained for the benefit of an IRA or Roth IRA beneficiary. This distribution will be taken into account in determining whether the required minimum distribution requirements of §§ 408(a)(6), 408(b)(3), and 408A(c)(5) have been satisfied.”
It seems then that if one holds an HSA (or qualifys to do so) and is named the beneficiary of one’s TIRA or RIRA, the beneficiary can transfer pre-tax to his/her HSA from the inherited T or R IRA an amount up to the annual HSA contribution maximum and may include the amount required to be part of the minimum required distribution. Also, this notice doesn’t speak to whether the decedent had reached their RBD or not, so I’d assume this doesn’t matter.
Would you agree?
You can see this IRS Notice at http://www.irs.gov/pub/irs-drop/n-08-51.pdf
BruceM
Permalink Submitted by Alan Spross on Sat, 2008-06-07 21:44
Bruce,
So I guess an HSA Funding contribution does not contribute much to tax simplification, so Congress bills it as “patient empowerment”……..
I agree that the decedent’s age does not appear to be a factor here, and the goal of providing an HSA outlet for inherited IRA RMDs introduced the RMD issue into this for the first time. It is interesting that there is no mention of crediting the RMD if an owner still working at 70.5 was not Medicare eligible and wanted some of the RMD from his owned IRA to be used as the HSA funding distribution.
It also appears that this ruling attempts to address a funding distribution made from a 72t (SEPP) plan, and describes what happens “IF” the SEPP is modified, but does not make it clear whether the transfer DOES constitute a modification of the plan. A transfer to another type of retirement plan is a modification, but I do not believe an HSA is considered a retirement plan, at least it is not primarily a retirement plan. It appears to me that someone doing this transfer within a SEPP is asking for trouble because the IRA custodian will report the transfer as a distribution and it ends up on the 1040 looking like a rollover. Of course, you cannot rollover a SEPP distribution, so the IRS may bust the SEPP plan. So I would not recommend this for SEPP participants trying to preserve some tax deferral through the HSA transfer until there is better clarification of the effect on the SEPP.
In any event, the ruling does provide a benefit for those with inherited IRAs including non spouse Roth inherited IRAs to salvage some benefit from the RMD requirement. These are often younger people more interested in funding an HSA than taking taxable RMDs from their inherited TIRA or even tax free RMDs from an inherited Roth.
If Democrats control the White House and both houses of Congress next year, it is quite possible there will be an assault on HSA accounts. The more of these in existence at the time, the less likely such an assault will be. It should be interesting.