Can You Convert an HSA to a Roth IRA? The Two-Step Workaround

You cannot convert an HSA to a Roth IRA directly. Federal tax law does not authorize a rollover, conversion, or trustee-to-trustee transfer between these two account types, and no financial institution will process one.¹ The only route is a two-step workaround: withdraw money from your HSA, absorb the tax cost, and then make a separate Roth IRA contribution with other funds. If you’re under 65, that tax cost is steep enough that the maneuver rarely makes sense.

Why No Direct Transfer Exists

An HSA is a tax-advantaged account for qualified medical expenses.² A Roth IRA is a retirement account. The Internal Revenue Code specifies which accounts can feed into a Roth IRA: traditional IRAs, 401(k)s, 403(b)s, 457(b)s, and other eligible retirement plans.¹ HSAs are not on that list.

Trying to force the transfer is worse than doing nothing. If the IRS treats an HSA transaction as prohibited, the entire account balance can be deemed distributed. The full amount becomes taxable income, plus a 20% additional tax, with no medical-expense offset.³

What a Non-Medical HSA Withdrawal Costs

Pulling money out of an HSA for anything other than qualified medical expenses triggers two layers of tax. The withdrawn amount counts as ordinary income on your federal return, and the IRS adds a 20% additional tax on top.² That 20% is twice the 10% early-withdrawal penalty most people know from retirement accounts, and it stacks on your marginal income tax rate.

The math adds up fast. Someone in the 22% federal bracket who withdraws $5,000 owes $1,100 in income tax plus another $1,000 in the additional tax, leaving $2,900 before any state tax. California and New Jersey also tax HSA contributions and earnings at the state level, which would shrink that number further.

Your HSA custodian reports the distribution on Form 1099-SA, but that form doesn’t distinguish medical from non-medical use. You report the split yourself on Form 8889, filed with your return, and the additional 20% tax is calculated on lines 17a and 17b of that form.⁴

The Two-Step Workaround

Because no direct pathway exists, the process splits into two independent transactions. The Roth IRA doesn’t know or care where your contribution money originated. But you still need to clear the Roth side’s own eligibility rules before the second step works.

The sequence:

Request a distribution from your HSA custodian. Some providers charge $20 to $25 to close or drain an account.
Accept the income tax and, if under 65, the 20% additional tax on that distribution.
Contact your Roth IRA custodian and designate a contribution for the current tax year. The custodian reports it on Form 5498.⁵

Roth IRA Rules That Can Block Step Two

Even after paying the withdrawal tax, three Roth IRA rules can stop the contribution from happening or shrink it.

Contribution Limits

For 2026, total contributions across all your traditional and Roth IRAs cannot exceed $7,500 if you’re under 50, or $8,600 if you’re 50 or older.⁶ That’s a combined cap. If you already contributed $3,000 to a traditional IRA this year, only $4,500 of Roth space remains.

You Need Earned Income

You can only contribute up to your taxable compensation for the year, meaning wages, salary, tips, or self-employment income.⁷ An HSA distribution is not earned income. A retiree whose only income is investments and HSA withdrawals cannot make a Roth contribution regardless of how much cash the withdrawal produced. This catches many retirees off guard.

Income Phase-Outs

Your modified adjusted gross income must fall below certain thresholds. For 2026:⁸

Single or head of household: full contribution allowed with MAGI below $153,000, reduced between $153,000 and $168,000, none above $168,000.
Married filing jointly: full contribution allowed below $242,000, reduced between $242,000 and $252,000, none above $252,000.
Married filing separately (lived with spouse): phase-out runs from $0 to $10,000, blocking most contributions.

Here’s the trap. The non-medical HSA distribution itself is taxable income and raises your MAGI. A large withdrawal can push you into or through the phase-out zone, cutting your Roth contribution room for that year. If you realize too late that you’re over the limit, you can recharacterize the contribution as a traditional IRA contribution by the extended filing deadline, generally October 15 of the following year, to avoid the 6% excess contribution penalty.⁹

One more Roth wrinkle if this is your first Roth contribution: qualified tax-free distributions require the account to have been open for at least five tax years and you to meet another condition, such as being 59½.¹ The five-year clock starts on January 1 of the tax year of your first-ever Roth contribution. Contributions themselves can always come out tax-free, but earnings withdrawn early can be taxed and penalized.

How Turning 65 Changes the Math

The 20% additional tax on non-medical HSA distributions disappears permanently at 65.² The statute pegs the age to Section 1811 of the Social Security Act, which is 65.¹⁰ From then on, a non-medical HSA withdrawal is taxed like a traditional IRA distribution: ordinary income tax, nothing extra.

That changes the workaround from expensive to merely costly. A 22%-bracket withdrawal of $7,500 costs $1,650 in tax after 65 versus $3,150 before. Whether that price is worth paying depends on your expected future tax bracket and your goals. If you expect to be in a higher bracket later, or you want to leave tax-free money to heirs, the math can favor the move. If you’re already in a lower bracket than you’ll be later, run the numbers before acting.

One timing issue: enrolling in any part of Medicare ends your ability to contribute to an HSA.³ You can still withdraw from the account, but you cannot keep contributing while draining it toward a Roth. Medicare Part A enrollment can be retroactive up to six months, so you may need to stop HSA contributions before your official sign-up date.

Watch for Medicare Premium Surcharges

A large non-medical HSA withdrawal raises your MAGI, which can trigger income-related monthly adjustment amounts on Medicare premiums two years later. For 2026, a single filer with MAGI above $109,000 or a joint filer above $218,000 pays higher Part B and Part D premiums.¹¹ The base Part B premium in 2026 is $202.90 per month, climbing to $689.90 at the highest income tier. A single $20,000 HSA withdrawal that crosses a threshold can add more than $970 per year in premiums. Most people don’t see this coming until the adjusted bill arrives.

Other Ways to Avoid the 20% Additional Tax

Age 65 is the common exception. Two others also waive the 20% additional tax on non-medical distributions, though income tax still applies:⁴

Disability. If a physician determines you are permanently and totally disabled, meaning you cannot engage in any substantial gainful activity, the 20% tax does not apply.
Death. A surviving spouse who inherits the HSA can treat it as their own and use it tax-free for qualified medical expenses. A non-spouse beneficiary must take the full balance as a taxable distribution in the year of death, but without the 20% additional tax.

These matter for planning. Naming a spouse as HSA beneficiary preserves the account’s tax treatment; a non-spouse beneficiary will lose a significant portion to income tax in a single year.

When the Two-Step Workaround Actually Makes Sense

For most people under 65, the combined income tax and 20% additional tax make this move prohibitively expensive. You’re also giving up the HSA’s triple tax advantage on future medical spending, which is a real cost even if it doesn’t show up on a tax form. The math starts to work only in specific cases:

You’re 65 or older, so the 20% additional tax no longer applies.
You’re in an unusually low tax bracket this year, perhaps from a work gap, so the income tax bite is small.
You have excess HSA funds you’re confident you won’t need for medical care and want to convert them into a tax-free inheritance vehicle.
You want to consolidate accounts and the simplification is worth the tax cost, which is rarely true before 65.

For most people, the better strategy is to keep the HSA invested and use it for medical expenses in retirement, when those expenses tend to rise. Qualified medical withdrawals from an HSA remain tax-free at any age. The people who benefit from the two-step workaround are those with large HSA balances, low expected medical costs, and a specific reason to want the money in a Roth.

The reverse move does exist in a limited form: a one-time, lifetime qualified HSA funding distribution can move money from a traditional or Roth IRA into an HSA, capped at the year’s HSA contribution limit, with a 12-month HDHP testing period attached.³ That’s the opposite direction from what you asked about, and it doesn’t help move HSA money into a Roth, but it’s worth knowing the pathway exists in one direction only.

1
Office of the Law Revision Counsel. 26 USC 408A – Roth IRAs
2
Office of the Law Revision Counsel. 26 USC 223 – Health Savings Accounts
3
Internal Revenue Service. Publication 969 (2025), Health Savings Accounts and Other Tax-Favored Health Plans
4
Internal Revenue Service. Instructions for Form 8889 (2025)
5
Internal Revenue Service. About Form 5498, IRA Contribution Information (Info Copy Only)
6
Internal Revenue Service. Retirement Topics – IRA Contribution Limits
7
Internal Revenue Service. Topic No. 309, Roth IRA Contributions
8
Internal Revenue Service. 401(k) Limit Increases to $24,500 for 2026, IRA Limit Increases to $7,500
9
Internal Revenue Service. Publication 590-A, Contributions to Individual Retirement Arrangements (IRAs)
10
Social Security Administration. Social Security Act Section 1811
11
Centers for Medicare & Medicaid Services. 2026 Medicare Parts A and B Premiums and Deductibles