Moving Money to an HSA with a Qualified HSA Funding Distribution
by Robert Shipp, QKA, CIP, CIS, CHSP
What is a qualified HSA funding distribution?
A qualified health savings account (HSA) funding distribution is a direct movement of assets from a Traditional or Roth IRA to an HSA as a regular contribution. The distribution check must be made payable to the receiving organization. The election to take a qualified HSA distribution is irrevocable, and the contribution cannot be deducted or treated as a prior-year contribution.
Note that these distributions cannot be made from “ongoing” simplified employee pension (SEP) or savings incentive match plan for employees of small employers (SIMPLE) IRA plans. SEP and SIMPLE IRA plans are considered ongoing if an employer makes contributions in the plan year ending with or within the year in which the qualified HSA funding distribution is being taken.
How much can be distributed?
The qualified HSA funding distribution amount is limited to the annual HSA contribution limit, which depends on the type of high deductible health plan (HDHP) coverage (self-only vs. family) held at the time of the distribution, and the HSA owner’s age.
The self-only contribution limit is $3,450 for 2018 and $3,500 for 2019. The family contribution limit is $6,900 for 2018 and $7,000 for 2019. An additional $1,000 catch-up contribution may be made by individuals who attain age 55 before the end of the tax year. If an HSA owner changes from self-only to family coverage during the year, she may make an additional qualified HSA funding distribution in that same year so that the total equals the larger family contribution limit. In all other cases, only one qualified HSA funding distribution may be taken in a lifetime.
Can a qualified HSA funding distribution go toward satisfying an RMD?
Yes, a qualified HSA funding distribution may satisfy an IRA owner’s required minimum distribution (RMD) or a beneficiary’s life expectancy payment.
I’ve heard of something called a “testing period.” What is that?
For the HSA funding distribution to be qualified, the HSA owner must remain HSA eligible (with exceptions for death and disability) by retaining HDHP coverage during a “testing period.” This period lasts for the 12 months following the month that the qualified HSA funding distribution was contributed to the HSA (e.g., the testing period for a distribution taken on May 8, 2018, would end on May 31, 2019). If coverage changes from self-only to family mid-year, and a second qualified HSA funding distribution is taken, each distribution will have its own testing period. It is the HSA owner’s responsibility to track these testing periods.