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A one-time HSA rollover break!

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in Small Business Tax

The Tax Relief and Health Care Act of 2006 provided a once-in-a-lifetime opportunity to shift money into a Health Savings Account.

Strategy: Roll over funds from your IRA. Normally, that would constitute a taxable distribution, but the 2006 law allows you to transfer an unlimited amount 100% tax-free. Plus, you pay no 10% penalty if you’re under age 59½.

Even better, future IRA distributions that normally would be taxable will be tax-free if you use the money for qualified medical expenses. This provision particularly benefits retirees and employees who are nearing the end of their careers.

The rollover tax break applies to tax years beginning after 2006. The maximum amount that you can roll over is limited to the HSA-contribution maximum at the time of the rollover.

Caveat: Once you elect to roll over the funds, you can’t revoke the decision.

Reminder: You can do this only once.

Tip: You also can roll over funds tax-free from a Flexible Spending Account to an HSA, but this provision expires after 2011.


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