How to report a Once in a Lifetime IRA to HSA Rollover?

Jaero
Jaero Member Posts: 2 Newcomer
in Retirement Income

In 2024, my wife took a once-in-a-lifetime IRA to HSA rollover. The money was transferred directly from a traditional IRA at one custodial company to an HSA at another custodial company. The 1099R for this rollover shows: The Distribution Amount, Taxable Amount not Determined is checked, Distribution Code 7 (normal distribution) in Box 7, and IRA/SEP/SIMPLE is checked.

How should this 1099R be input in FreeTaxUSA? When entering a 1099R, I am given the option of specifying that it is a rollover to another IRA account, but there is no option for an HSA account. What is the best way to report this rollover in FreeTaxUSA?

Thanks.

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Answers

  • KristineS
    KristineS FreeTaxUSA Agent Posts: 220

    Hi Jaero,

    Sounds like your wife took advantage of what's known as a qualified HSA funding distribution.

    Generally, a direct transfer from one retirement account to another retirement account is called a trustee-to-trustee transfer. However, since the HSA is not technically a retirement account, it would be considered a rollover.

    In FreeTaxUSA software, in this instance, check YES to the question "Is this a rollover?"

    You'll then be asked what portion was rolled over. Here you'll need to be aware of the rules on this.

    IRA to HSA rollovers allow a maximum amount of rollover limited to that year's HSA contribution limit. So depending on how old your wife is (+/- 55) you'd be limited to the Individual or Family amount she has for her HSA plan. For 2024, the annual contribution limits on deductions for HSAs for individuals with self-only coverage is $4,150 and $8,300 for family coverage. There is an additional contribution amount of $1,000 for taxpayers who are age 55 or older.

    Read more here on the limitation rule in IRS Publication 969. Key word search "Qualified HSA funding distribution."

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  • Jaero
    Jaero Member Posts: 2 Newcomer

    Yes, we made sure to keep the rollover amount under the HSA contribution limit for family coverage plus the make-up contribution. So, the entire amount of the IRA distribution was rolled over into the HSA.

    I followed your guidance. I appreciate the input. Thanks.

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