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INDIVIDUALSFINANCIAL PLANNING
PERSONAL

Table 3: Comparable basic features of traditional IRA, Roth IRA, and HSA
tax-favored investment vehicles

HSA (Sec. 223) Traditional IRA (Sec. 408, Sec. 219) Roth IRA (Sec. 408A)
■ Taxpayer maintains coverage under ■ Taxpayers who receive taxable ■ Taxpayers who receive taxable compensation
a high-deductible health plan (HDHP) compensation can contribute up to the annual contribution
and no other health insurance plan. limit if 2022 (Roth) modified adjusted gross
■ Taxpayer cannot be enrolled income (MAGI) is lower than:
in Medicare. • For joint returns, $204,000 ($198,000
■ Taxpayer cannot be claimed as in 2021), phased out fully when income
a dependent. reaches $214,000 ($208,000).
Eligible taxpayers ■ Basic requirements of an HDHP: • For single or head-of-household returns,
• Minimum deductible of $1,400 for $129,000 ($125,000 in 2021), phased
an individual, $2,800 for a family. out fully when income reaches $144,000
• 2022 maximum out-of-pocket ($140,000).
expenditures of $7,050 for an in- • For married filing separately, $10,000 (with
dividual and $14,100 for a family no phaseout).
(in 2021, $7,000 and $14,000).
■ In 2022, $3,650 for an individual and ■ If not covered by an employer ■ Lesser of:
$7,300 for a family (in 2021, $3,600 retirement plan, a 2022 (and • $6,000 ($7,000 if age 50 or older) minus all
and $7,200).
Limits on annual ■ The contribution limit is increased 2021) deduction is allowed for contributions to non-Roth IRAs, or
the lesser of:
contributions by $1,000 for taxpayers who are age • $6,000 ($7,000 if age 50 or • Taxable compensation minus all contribu-
tions to non-Roth IRAs.
55 or over. older), or
• Taxable compensation.
■ Deductible in the year contributed or, ■ If covered by an employer ■ No deduction is permitted in the year of
if allocated to the year, before the fil- retirement plan, the deduction the contribution.
ing date of the tax return for the year phases out completely in 2022 ■ No income is recognized in the year
(without extensions). when MAGI reaches $78,000 of withdrawal.
■ Excludable in the year contributed if (single or head of household),
Tax effects of paid by the taxpayer’s employer. $129,000 (married filing jointly),
or $10,000 (married filing
contributions separately).
■ Special rules apply to (1) the
spouse with lower income who
files a joint return, and (2) when
contributions are made to a
Sec. 501(c)(18) retirement plan.
■ Medical expenses that qualify for ■ Withdrawals are fully taxable ■ Withdrawals from a Roth IRA are not taxable if
Sec. 213 medical and dental ex- upon withdrawal. they occur:
pense deduction, and unprescribed • After the five-year period beginning with the
Qualified tax-favored over-the-counter medicine and year of the first Roth IRA contribution, and:
withdrawals menstrual products. Œ After reaching age 59½,
ΠBecause you are disabled,
ΠBy a beneficiary upon death, or
ΠUp to $10,000, for a qualified first home.
None ■ Withdrawals must begin by None
April 1 of the year after the tax-
payer reaches age 72.
Required minimum ■ The minimum distribution formu-
la is based on life expectancy.
distributions
■ 20% of withdrawal, in addition to ■ 10% additional tax applies to ■ 10% additional tax applies to the income portion
inclusion as ordinary income in the withdrawals made before attain- of nonqualified withdrawals that do not meet
year of withdrawal, except the 20% ing the age of 59½. one of several exceptions.
penalty does not apply if the with-
drawal occurs:
Penalties for • At death or disability of the ben-
ineligible withdrawals eficiary, or
• After the beneficiary reaches
age 65.

Note: Individual retirement account rules and limits are obtained from Sec. 219, Sec. 408, Sec. 408A, IRS Publication 590-A, IRS Publication 590-B, IRA Deduction
Limits (IRS website), and Retirement Topics — IRA Contribution Limits (IRS website). HSA rules and limits are obtained from Sec. 106(d), Sec. 213, Sec. 219(f)(3),
Sec. 223, 42 U.S.C. §1395c, Rev. Proc. 20-32, Rev. Proc. 21-25, and IRS Publication 969.

32 April 2022 The Tax Adviser