Qualified Health Savings Account Funding Distribution (QHFD).
I read this item with great interest. “Qualified Health Savings Account Funding Distribution (QHFD). An IRA owner is allowed to make a one-time tax-free transfer from an IRA to a health savings account. This transfer is not subject to the 10% early withdrawal penalty and is a unique way to fund an HSA, if only for one time. The drawback is that the amount of the transfer is capped by the HSA contribution limits for that year, based on the IRA owner’s coverage (i.e., self-only or family). Since a QHFD can only be done with pre-tax dollars, it is an exception to the pro-rata rule.”
However, I am retired and on Medicare and it was my understanding I could not make HSA contributions, or is this an exception?
Permalink Submitted by Alan - IRA critic on Thu, 2022-01-06 01:55
If you are not covered by a HDHP, you cannot contribute to an HSA or do a QHFD. However, if you did qualify for an HSA contribution via QHFD, the transfer would not be pro rata as the pre tax IRA balance would be transferred first.
Permalink Submitted by William Tuttle on Thu, 2022-01-06 05:01
Even an HSA eligible individual should almost never use a QHFD unless they have no other means of funding an HSA contribution. Also, it is unnecessary and counter-productive to do a QHFD if >= age 59 1/2. They could simply withdraw the funds from the IRA and make an HSA contribution. Whereas, a QHFD is subject to a 12 month “testing period”.