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: 246

    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."

  • 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.

  • jt88
    jt88 Member Posts: 1 Newcomer

    I also used this once-in-a-lifetime rollover option and followed your instructions when entering my 1099-R form. However, I also need direction on how to enter the information on my HSA section. When I enter my HSA contributions, it doesn't give me the option to designate that it was a Qualified HSA funding distribution, so any amount I enter shows up on Line 2 of Form 8889. However, the instructions for Form 8889 state that Qualified HSA Funding Distributions should not be entered on Line 2, and should instead appear on Lines 10 and 19. How do I enter the information correctly on the FreeTaxUSA software so that the HSA contribution appears correctly on Form 8889? Thank you for your help.

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