Qualified Health Funding Distribution (QHFD) - Move IRA Money to HSA Tax-Free
This little known trick can only be used once
If you are eligible for an HSA in 2020, the limits for a family are $7,100 or $8,100 for a family over age 50. Generally we recommend maxing each year and investing the balance, while paying for your medical costs out of pocket. This is the best way to take advantage of the triple tax free benefits of an HSA - the only triple tax free investment vehicle in the USA.
But what if you don't have the discretionary income to fund your HSA this year? Enter QHFD - problem solved! The QHFD is a tax-free rollover from your IRA to your HSA. It is the perfect solution for someone who wants to fund their HSA but can't for whatever reason. The best part is that we are taking money from the IRA and not paying the ordinary income or the pre-59 1/2 penalties! Unfortunately the QHFD can only be used once and we are subject to the contribution limits.
Nick Hopwood, CFP® is a financial advisor at Peak Wealth Management in Plymouth MI and manages over $170,000,000 for his clients.