IRA to HSA Rollover
I have a client who recently retired and turned 64 in March. He and his wife are covered under a High-Deductible Plan through is old employer (via COBRA). Due to the testing period and being within the 12 months of Medicare enrollment it is my understanding he is not eligible to do the rollover from IRA to HSA, but I am curious if his wife would be able to open an HSA in her name and do the rollover. Is there anything I am missing. The rules are tricky.
Permalink Submitted by Alan - IRA critic on Fri, 2025-04-18 11:50
Yes, the rules are complex. She could open an HSA but would also need to have her own IRA as the transfer cannot be made from client’s IRA to her HSA.
But even if she has an IRA, her transfer is subject to a testing period for HDHP eligibility. For example, if she were to do the funding distribution before the end of April, the Cobra/HDHP coverage could not end before 4/30/2026 or the transfer would be subject to tax and penalty of 10%. If the distribution was done in May, then the Cobra/HDHP coverage could not end before 5/31/2026. The distribution cannot be more than the amount allowable as an HSA contribution for those with family coverage (8,550 for 2025).
The transfer must be reported on Form 8889. It is not deductible as an HSA contribution or taxable as an IRA distribution if the requirements are met.
Conversely, she could open an HSA and make a regular contribution that would be deductible and her IRA would not be diminished in value.