Can an Annuity Be Rolled Into an HSA?

Difference Between IRA and Annuities

An IRA (individual retirement account) and an annuity are both tax-deferred investment accounts. Both accounts allow you to accumulate funds to use as retirement income. You contribute to an IRA using your earnings through employment. IRA annual contribution limits are regulated by the Internal Revenue Service (IRS). With an annuity, you can contribute as much as you desire using funds from any source. Unlike annuities, an IRA is tax deductible.

An HSA is designed to cover current and future medical expenses. If the funds in an HSA are not used, they roll over to the next year. HSAs are only available to taxpayers who are enrolled in a High Deductible Health Plan. You are not required to pay taxes on funds deposited into the HSA at the time of deposit. Withdrawals for qualified medical expenses are also tax-free. After you reach age 65, you can use the account funds as desired, even for non-medical expenses. However, non-medical related withdrawals will be taxed as income.

IRA funds can be easily rolled into a tax-free annuity. The type of annuity you can choose depends on what you would like to accomplish. Some annuities offer a fixed rate of interest, while others offer rates driven by the stock market. Only designated IRA annuities can be rolled into a self-directed IRA. To roll an annuity into an IRA, the funds must be rolled into a traditional IRA, then can be rolled into a Roth IRA. If you have both traditional and Roth IRA funds, they cannot be combined in an annuity due the the difference in tax requirements.

An annuity cannot be rolled into an HSA. However, an IRA can be rolled into an HSA. Therefore, if your annuity is one that qualifies to be rolled into an IRA, you can roll the funds into an IRA and then an HSA. Putting IRA funds into an HSA can even help you avoid some taxes. You are allowed one IRA to HSA transfer in your lifetime and it cannot exceed the maximum HSA contribution limit for the year. You will also need to maintain your HSA eligibility by keeping your high-deductible health plan for 12 months after the transfer occurs. If you drop your plan within the year, you may be required to pay a 10 percent penalty on transferred funds in addition to regular income taxes.