The Little-Known Strategy That Can Turn IRA Dollars Into Tax-Free Money
- John-Mark Young
- 1h
- 4 min read
Most people know the basics of IRAs and HSAs. Very few know that, under the right conditions, you can move money from one to the other. Tax-free.
It’s called a one-time IRA-to-HSA rollover, and for someone with a large IRA balance in their early 60s, it can be a small but powerful planning move. Even many advisors aren’t familiar with it.
As a Financial Advisor who also owns and operates a tax practice, we constantly consider lifetime tax liabilities. The most basic, lay-up approach to handling lifetime taxes for retirement is to save in a Roth IRA and a brokerage account as part of your Baby Step 4 journey. Then, dealing with Roth conversions during those pivotal pre-RMD years from retirement to 73-75 (depending on when your RMDs start). But this can also be a tool, useful especially if you're not completely leveraging your HSA to its maximum savings potential each year.
Here’s how it works, who it’s for, and when it makes sense.
What Is a One-Time IRA-to-HSA Rollover?
If you are:
Covered by an HSA-eligible high-deductible health plan, and
Not yet enrolled in Medicare
You are allowed to make a one-time, tax-free transfer from your IRA directly into your HSA.
This is not a withdrawal.The money moves trustee-to-trustee, never touches your checking account, and does not show up as taxable income.
In simple terms, you’re taking tax-deferred IRA dollars and repositioning them so they can eventually come out completely tax-free when used for qualified medical expenses.
How Much Can You Transfer?
The rollover amount is limited by your HSA contribution limit for the year.
For 2026, the HSA contribution limits are:
$4,400 for self-only coverage
$8,750 for family coverage
If you are age 55 or older, you can add a $1,000 catch-up, bringing the maximums to:
$5,400 (self-only)
$9,750 (family)
Important detail:The rollover uses up your HSA contribution room for that year. You also can’t contribute new cash on top of it.
The 12-Month Rule (This Part Matters)
After completing the rollover, you must remain HSA-eligible for the next 12 months.
If you enroll in Medicare or lose HSA eligibility during that period:
The rollover becomes taxable
A penalty applies
This is why timing is critical. For someone planning to enroll in Medicare soon, this strategy may not fit. For someone in their early 60s with a few years before Medicare, it often does.
Why This Can Be So Valuable
Think about what you’re really doing.
IRA money is tax-deferred, not tax-free
HSAs, when used correctly, are triple tax-advantaged
Deductible going in
Tax-deferred growth
Tax-free coming out for medical expenses
For retirees, healthcare is one of the largest and most predictable costs. This strategy creates tax-free dollars specifically earmarked for those expenses.
It also reduces future required minimum distributions (RMDs) by shrinking your IRA balance, which can help with taxes later in retirement.
A Long-Term Care Example
Here’s a simple illustration.
Assume:
Age 60
Family HSA coverage
$9,750 rolled from an IRA into an HSA
Invested and averaging 8% annually
By age 85, that single rollover could grow to approximately:
$71,566
That’s money available tax-free for healthcare costs at the stage of life when long-term care and medical expenses are most likely to occur.
This isn’t a silver bullet. But it is meaningful.
Helpful Scenarios to Consider
Scenario 1: Large IRA, Modest Tax Savings Today
You don’t need the IRA money now, and you don’t mind giving up a deduction today (assuming you were contributing salary dollars into the HSA) in exchange for future tax-free healthcare dollars. This is often a good fit.
Scenario 2: Early 60s, Medicare Is Still a Few Years Away
You have enough runway to satisfy the 12-month rule comfortably. Timing works in your favor.
Scenario 3: Concerned About Future RMDs
Even a small reduction in IRA balances can help manage taxes later. This strategy quietly moves money out of the RMD system.
Scenario 4: Planning for Healthcare and Long-Term Care
You expect healthcare to be a major retirement expense and want dollars specifically set aside for that purpose.
One More Key Detail: How Your HSA Is Invested
This strategy works best when the HSA is invested, not sitting in a bank account earning almost nothing.
Not all HSAs allow proper investment options. Some limit choices or require large cash balances before investing.
If your HSA can’t be invested effectively, the long-term benefit drops significantly.
The Bottom Line
The one-time IRA-to-HSA rollover isn’t flashy. It won’t change your retirement overnight.
But for the right person, at the right time, it quietly converts tax-deferred dollars into tax-free money, reduces future RMDs, and creates flexibility for healthcare and long-term care costs.
Those are real benefits.
The key is understanding the rules, the timing, and whether your HSA is set up to make the strategy worthwhile.
If you’re in your early 60s with a large IRA balance, this is a conversation worth having with your Whitaker-Myers Wealth Managers Financial Advisor.
