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Using HSA withdrawals to fund Roth IRA
Posted on 10/25/20 at 4:27 pm
Posted on 10/25/20 at 4:27 pm
So I have maxed out my HSA the last couple years and it has grown to a sizable chunk of change in a short time. I have never withdrawn money to pay for expenses instead choosing to leave them in to grow. I now have about $2k worth of medical expenses racked up, mostly for my children under my family plan. This year in particular both me and my wife cut down our IRA contributions while trying to save every dollar we could for a down payment on a house. As of now we will not max those accounts. Is there any downside to withdrawing the $2k from my HSA then immediately depositing it into my Roth? I can’t seem to find one. The money will still grow and be able to be withdrawn tax-free, at an earlier age and without the limitations of having to be for medical expenses. I’m just not coming up with any downsides here. Unless I’m overlooking something. Money Board please advise.
3
Posted on 10/25/20 at 5:28 pm to PillPusher
Can't say I quite understand why you're trying to do it, but no there's nothibg wrong/illegal with it.
Just make sure you have the receipts saved up that add up to the amiunt you're withdrawing from the hsa in case of a future audit.
Just make sure you have the receipts saved up that add up to the amiunt you're withdrawing from the hsa in case of a future audit.
Posted on 10/25/20 at 5:40 pm to castorinho
Like I said I can’t find any Disadvantages. But the Advantages I’m coming up with are:
1.) earlier withdrawal age
2.) easier to pass onto beneficiaries
3.) better fund choices in IRA
4.) no longer am tied to withdrawing funds based on medical expenses. (I can withdraw from IRA what I put in for any reason if I needed to)
4.) no longer have to keep track of those medical expenses. Basically start fresh.
1.) earlier withdrawal age
2.) easier to pass onto beneficiaries
3.) better fund choices in IRA
4.) no longer am tied to withdrawing funds based on medical expenses. (I can withdraw from IRA what I put in for any reason if I needed to)
4.) no longer have to keep track of those medical expenses. Basically start fresh.
Posted on 10/26/20 at 2:04 pm to PillPusher
Wouldnt the amount withdrawn from the HSA be subject to the 20% penalty?
Posted on 10/26/20 at 2:14 pm to Hester Carries
Nah. He's paying himself back for out of pockets eligible (medical) expenses
Posted on 10/26/20 at 2:23 pm to castorinho
quote:
Nah. He's paying himself back for out of pockets eligible (medical) expenses
I see that now. Missed that on the first go round.
Posted on 10/27/20 at 3:07 am to PillPusher
That's actually really smart.
As long as your HSA is over $2K (I assume it is much higher than that but it doesn't matter), then this is a great move.
You've incurred $2K in qualifying medical bills. So the two choices you've considered are moving the $2K into a Roth or keep it in your HSA.
Both grow tax free, except in the HSA any growth is only tax free if its used for qualifying medical expenses. So the same $2K moved over to a Roth will incur growth that is tax free no matter what it's used for.
So you have more flexibility with your $2K moved to the Roth.
As long as your HSA is over $2K (I assume it is much higher than that but it doesn't matter), then this is a great move.
You've incurred $2K in qualifying medical bills. So the two choices you've considered are moving the $2K into a Roth or keep it in your HSA.
Both grow tax free, except in the HSA any growth is only tax free if its used for qualifying medical expenses. So the same $2K moved over to a Roth will incur growth that is tax free no matter what it's used for.
So you have more flexibility with your $2K moved to the Roth.
Posted on 10/27/20 at 7:15 pm to 98eagle
quote:
That's actually really smart.
I agree. No downside I can think of if he can’t fund the Roth by another means. He’ll likely have better investment options in the Roth.
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