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I live in the US. I will be 59.5 on October 31, 2019. I have a Traditional IRA and an HSA (and coverage under a high deductible health plan, as I believe is required for making HSA contributions).

In the near future (after 10/31), I would like to take a distribution from my IRA and report it as income on my tax return for 2019, and also make a contribution to my HSA for 2019. I don't want to use the one-time qualified direct roll procedure. I just want to get an IRA distribution, report it as income on my tax return, and also put some of the money in my HSA.

Does this break any IRS rules?

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Tom, I pray to god that you are above age 59 1/2 yrs old because if you are not you will get penalized 10% of principal taken in withdrawals, even if you grandfather the distributions for 2019 in 2030. You are asking for problems. As far as HSA contributions once the money is post-tax dollars into a "tax exempt" asset you should be fine.

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    Thanks for the quick response. I will be over 59.5 when I do this (after 10/31). I think the point is your last statement. My question is really whether once the IRA money is out of the IRA and in my checking account, will the IRS have a cow if I put some of it in my HSA? I wouldn't think so, but just want confirmation. Thanks! – Tom Barron Oct 14 at 19:02
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This should not break any rules. However be aware, this will likely cost you an additional 10% penalty on the funds you withdraw from the IRA in addition to income tax on the IRA withdrawal as it is not a valid hardship deduction.

The only situation I could imagine you avoiding the penalty is if the HSA deposit is due to unreimbursed medical expenses that exceed more than 7.5% of adjusted gross income (or potentially more depending on your age) which would be exempt from the 10% penalty fee.

Unless you have had extremely little income this year (and so are paying effectively 0% income tax) this is likely a bad idea. What would likely be more sensible is to do a Roth rollover of the IRA (paying income tax on the converted funds), then after 5 years you will be able to withdraw the principal (but not the profits) to deposit into an HSA tax free (assuming you still have an HDHP then).

  • Thank you for the quick response. I forgot to mention that I'll be over 59.5 when I take the IRA distribution and I expect my income to be below the threshold for a tax liability this year. – Tom Barron Oct 14 at 18:59
  • @TomBarron No problem at all. In that case you should be fine regarding the penalty. As long as you are eligible to deposit to an HSA due to a qualifying HDHP you should be fine to go ahead and follow through with your plan. Good luck. – Vality Oct 14 at 19:42

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