Many Health Savings Account Owners Make IRA Transfer
The IRS provides an opportunity for employees to shelter some of their medical expenses from taxation by transferring funds from their individual retirement accounts (IRA) to a health saving account (HSA). This amendment to tax legislation can mean considerable savings for eligible enrollees in terms of income tax and tax deductions.
Fort Collins, CO (PRWEB) July 1, 2008 -- Eligible individuals can now make a one-time tax-free transfer of individual retirement account (IRA) funds to start a health savings account (HSA) under the guidelines set down in IRC Sec. 223. Under the amendment, employees can use what was originally in their IRA to pay for medical benefits without having to pay for the 10% additional tax under IRC Sec. 72(t).
The legislation also allows you to use of existing funds in your IRA as a source of tax-free contribution to your existing HSA. Wiley Long, president of HSA for America, explained the benefits of this strategy. "It makes a lot of sense to transfer money from your IRA to your HSA, particularly if you don't have enough cash on hand to fully fund it for the year. Once that money is transferred the HSA, you can spend it on medical expenses without ever being taxed on the money. This is a tremendous financial benefit." HSA for America is one of the leading providers of HSA-qualified health insurance plans for American small business owners and employees.
The owner of an HSA is also eligible for a second transfer within the same taxable year if he has a self-only high deductible health plan (HDHP) during the period of the IRA transfer, and within that same period purchases family HDHP coverage. The fund distribution remains tax-free. Long says that this strategy has been popular among his customers. "This is a great provision for someone who wants to get their account fully funded, so they know they've got the money to cover a deductible. That way, they can carry a higher deductible, lower-priced health insurance plan."
There are several conditions for eligibility for the tax advantages under the 2006 amendment. The individual making the transfer must remain eligible within 12 months of the IRA to HSA funding distribution, referred to as the "testing period." If within that period, the individual becomes ineligible, then the transferred amount will be subject to the usual income taxes. Furthermore, the amount transferred will be deducted from the maximum allowed HSA contribution for that year.
Long explained the reason many of his customers are making this transfer. "Having money from an IRA work for immediate medical needs frees up some funds that would otherwise go to tax payments. The value of an HSA is especially high when the account holder is still productive, to stave off the pressures of high taxation and rising medical care costs."
Transferring funds from an IRA to an HSA enables individuals to reduce their potential tax liabilities, and to also lower their health insurance premiums by switching to higher deductible plans.
HSA for America is one of the leading providers of health savings accounts, health reimbursement accounts, and related information for employees and small business owners across America. HSA accounts are an effective way of saving money on healthcare costs and taxes and have an investment module at the very same time. Learn more about Health Savings Accounts at our free weekly teleseminar which you can sign up for at: http://www.health--savings--accounts.com/teleseminar.htm.
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