Example 1 Layne is a 24-year old individual with an IRA ($10,000 value) he has funded with earnings from part-time jobs in prior years. His 23-year old wife Madison also has a $10,000 IRA funded with prior year earnings.
Both start new jobs this year, and they obtain family qualified-HSA coverage for the entire year through Madison’s job. They have enough money to put $5,500 in an IRA or in an HSA, but not both.
Put $5,500 in an IRA and deduct it. Then have one of them do the once-in-a-lifetime transfer to the HSA for this year. That way the money is in the HSA for future medical needs. They get a deduction for the $5,500 IRA deposit and they obtain a tax-free transfer to their HSA from the IRA for the full family deposit limit of $6,900, leaving $8,600 in the IRA ($10,000+5,500-6900) and $6,900 in the Health Savings Account to use without tax or penalty on any medical costs incurred since opening the savings accounts.
If you are really a great planner, have them do the same next year, even if they have enough money to put in both the IRA and the HSA. Fund and deduct 2 IRAs, do the lifetime transfer for the HSA and now there is $13,800, in total, in much more usable and flexible HSA accounts.
Note that they do not get a deduction for the IRA to HSA transfer, but the transfer enabled them to take money out of the IRA tax-free, while still making a current year IRA contribution.