The Tax Relief and Health Care Act Of 2006 allows a transfer of an IRA into a Health Savings Account (HSA).  This is a completely new twist on IRA distributions and we'll provide some updates on this brand new legislation which was just signed today.  BenefitsLink provides updates on Health Savings Accounts.

President George W. Bush signed the Health Opportunity Patient Empowerment Act of 2006 today, enhancing Americans' access to tax-advantaged health care savings. The law, part of the Tax Relief and Health Care Act of 2006, provides new opportunities for health savings account (HSA) participants' to build their funds.

One-time transfer from IRAs to HSAs.  The new rules allow for a one-time contribution to an HSA of amounts distributed from an Individual Retirement Arrangement (IRA).  The contribution must be made in a direct trustee-to-trustee transfer.  The IRA transfer will not be included in income or subject to the early withdrawal additional tax.  The transfer is limited to the maximum HSA contribution for the year, and the amount contributed is not allowed as a deduction.  Generally, only one transfer may be made during the lifetime of an individual.  If an individual electing the one-time transfer does not remain an eligible individual for the 12 months following the month of the contribution, the transferred amount is included in income and subject to a 10 percent additional tax.