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Julie
Newcomer

Julie asked 8 months ago in Savings Accounts

Can I roll an inherited IRA into an HSA fund (one-time) and avoid paying taxes on the inherited money from the IRA?

I inherited money from an IRA when my mother passed away. I recently opened up an HSA fund and have not contributed to it yet. I am wondering if I can roll over the maximum allowed contribution into the HSA fund from the inherited IRA without paying taxes?

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Kelly Phillips Erb
FiLife Contributor
Reply

There is a rule that allows rollovers from an IRA to an HSA without immediate taxes or penalties. But there are a number of restrictions.

The first is that it must be an administrative rollover - if the IRA has already been distributed to you outright, you won't qualify.

The second is that you can make the rollover only once in your lifetime, so you want to make it count.

You have to make the rollover to an existing HSA; you're restricted to the maximum HSA contribution limit for the year. Additionally, the amount of the IRA transfer reduces your HSA contribution for the year. If you fail to remain eligible for an HSA for 12 months after the transfer, the entire amount will be included in income and subject to a 10% penalty.

All that said, there is not a prohibition on rolling an inherited IRA to an HSA so long as you otherwise qualify. But it's tricky stuff, so make sure to discuss it with your financial advisor or your tax pro to make sure it's the best decision for you.

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Paul Kennard
Staff
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Tax laws surrounding inherited IRAs are quite complicated so please check with a tax professional before you take any action.

That being said, I don't believe that you can avoid paying taxes on an inherited IRA unless you are the spouse of the departed. If you were the spouse you could roll these funds into your personal IRA.

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