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A one-time IRA to HSA rollover will be a taxable event, but no penalty even though I am less than 59 1/2 years old. Should I have the IRA custodian withhold Fed and/or State taxes, or will the taxes be a wash on the tax forms?
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No, it is NOT taxable, but it is reportable on line 10 of Form 8889 and on line 15 of Form 1040 similar to IRA rollover reporting. You should NOT elect any withholding on this distribution or the withholding itself will generate tax and penalty. You should also receive a 1099R even though the funding distribution is done by direct trustee transfer.
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