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.
