A direct transfer from your Traditional IRA or Roth IRA to your Health Savings Account (HSA) is called a qualified HSA funding distribution. This is a trustee-to-trustee transfer, meaning the money moves directly from your IRA to your HSA without passing through your hands.
Even though the funds end up in your HSA, the money is distributed from your IRA and contributed to your HSA.
How it affects your HSA contribution limit
A qualified HSA funding distribution counts toward your annual HSA contribution limit. As a result, it reduces the amount you, your employer, or anyone else can contribute to your HSA for the year.
For example, if your HSA contribution limit is $5,000 and you transfer $2,000 from your IRA to your HSA, only $3,000 of additional HSA contributions can be made for that year.
How the transfer is taxed
A qualified HSA funding distribution:
- Is not included in your taxable income
- Is not deductible as an HSA contribution because it was funded with IRA assets rather than new contributions
Lifetime limit on HSA funding distributions
In general, you can make only one qualified HSA funding distribution during your lifetime.
However, certain exceptions may apply, such as when your HSA eligibility changes during the year. See the 8889 instructions for exceptions and more information.