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My income is too high to make a deductible IRA contribution.

I contribute to a Roth...
My income is too high to make a deductible IRA contribution.
I contribute to a Roth IRA annually by first making a non-deductible contribution to a traditional IRA and then immediately convert it over to the Roth. I keep a $0 balance in the traditional IRA to avoid having to pay any taxes or fees on the annual conversion to a Roth.

I have a 401k from a previous employer that I leave in their plan since I do not wish to have any IRA balances per above. I am satisfied with the investment choices, so I am glad to just leave it there. I would like to use money from this "dormant" 401k to make a contribution to a HSA account. I have lost my job and my employer is no longer making any HSA deductible contributions.

I assume that I must first take a partial distribution from the 401k into a IRA (amount equal to the amount I want to transfer to the HSA). After that then I would transfer the IRA money into the HSA leaving the balance in the IRA $0. I would separately make a non-deductible contribution to the IRA and convert to the Roth. Should I use separate IRA accounts to effect these transactions, or can I use the same one? Will the IRS disallow my Roth conversion if I use this method to fund the HSA from the dormant 401k?
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Answered in 9 minutes by:
6/29/2013
Robin D.
Robin D., Senior Tax Advisor 4
Category: Tax
Satisfied Customers: 15,888
Experience: 15years with H & R Block. Divisional leader, Instructor
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Robin D :

Hello and thank you for using Just Answer,
You can have a transfer from the IRA directly to the HSA . You are not allowed to move the funds directly from a 401K to an HSA. You can use the IRA plan you already have.
You are only allowed to do this once in a lifetime. There is an exception and that is changing from single to family or family to single.
A qualified HSA funding distribution may be made from a traditional IRA or a Roth
IRA, but not from an ongoing SIMPLE IRA or a SEP IRA. A SEP or a SIMPLE is considered ongoing if an employer contribution is made for the plan year ending with or within the IRA owner's taxable year in which the qualified HSA funding distribution would be made. You cannot move money directly from a 401(k) into an HSA; however, you may be able to move the money from a 401k to an IRA and then to an HSA.

Robin D.
Robin D., Senior Tax Advisor 4
Category: Tax
Satisfied Customers: 15,888
Experience: 15years with H & R Block. Divisional leader, Instructor
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