Can You Contribute Unearned Income to an HSA?

If you're considering opening an HSA (Health Savings Account) to save for medical expenses, you may be wondering whether you can contribute unearned income to it. The answer is yes, you can contribute unearned income to an HSA as long as it is considered taxable income by the IRS.

Unearned income typically includes sources such as:

• Interest and dividends from investments
• Rental income
• Income from royalties or trusts

Here are some key points to keep in mind about contributing unearned income to an HSA:

• Unearned income must be reported on your tax return and meet the IRS definition of taxable income.
• Contributions to an HSA must be made with after-tax dollars, so unearned income that is taxed meets this criterion.
• Contributions to an HSA are tax-deductible, even if the income used to contribute is unearned.
• HSAs offer triple tax benefits: tax-deductible contributions, tax-free growth on the account, and tax-free withdrawals for qualified medical expenses.

Remember that HSAs have annual contribution limits set by the IRS. For 2021, the contribution limit for individuals is $3,600 and $7,200 for families.

If you're thinking about opening a Health Savings Account (HSA) to assist with your medical costs, you might be curious if you can put unearned income into it. The simple answer is yes! You can contribute unearned income to your HSA, provided that the IRS classifies it as taxable income.

Unearned income generally comes from sources such as:

• Interest and dividends accrued from your investments
• Income generated from rental properties
• Royalties from content creation or income from trusts

Here are some important points you should remember regarding contributions of unearned income to an HSA:

• Make sure your unearned income is correctly reported on your tax return and conforms to the IRS definition of taxable income.
• All contributions to an HSA need to come from after-tax dollars, which means if your unearned income has been taxed, it qualifies for contribution.
• HSAs offer you a tax deduction for your contributions, even if that contribution stemmed from unearned income.
• One of the biggest advantages of an HSA is its triple tax benefits: tax-deductible contributions, tax-free growth, and tax-free withdrawals for medical expenses that meet qualifying criteria.

Keep in mind that HSAs come with annual contribution limits established by the IRS. As of 2021, the contribution limit is capped at $3,600 for individuals and $7,200 for families.