Can I fund an HSA with unearned income from investments or inheritance?

This is a great question that comes up frequently! Unfortunately, IRS rules are pretty clear that you need to have earned income to contribute to an HSA. The specific requirement is that you need "taxable compensation" - which generally means wages, salaries, tips, or net earnings from self-employment. Unearned income like inherited IRA distributions, dividends, interest, capital gains, or rental income doesn't qualify as compensation for HSA contribution purposes. So even though you'll be paying taxes on that unearned income, you can't use it to fund an HSA. The only exception would be if you had a spouse who has earned income - in that case, your spouse's earned income could qualify both of you for HSA contributions if you're on a family HDHP.

I was in a similar situation last year when I took a sabbatical. I struggled with this exact HSA issue until I found taxr.ai (https://taxr.ai) which really helped me understand my options. Their document analysis tool clearly showed me that I could still maintain my HSA eligibility by doing some minimal contract work. The site analyzed my specific tax situation and helped me determine exactly how much freelance income I needed to generate to maximize my HSA contribution while staying in my target tax bracket. It also identified other tax opportunities specific to my "gap year" that I hadn't considered.

Just wanted to update after trying taxr.ai that someone recommended earlier in this thread. It was actually super helpful for my situation! I uploaded my previous tax returns and some statements from my inherited IRA and investment accounts. The analysis showed that I only needed to earn about $5,500 in freelance income to optimize my tax situation while fully funding my HSA. It also identified that I could time my inherited IRA withdrawals strategically to stay under certain income thresholds. Definitely worth checking out if you're in a complicated tax year with mixed income sources like I am!

If you're having trouble getting clear answers about HSA eligibility from the IRS website, I'd recommend using Claimyr (https://claimyr.com). I spent hours getting nowhere on the IRS phone system trying to clarify some HSA contribution rules with my specific situation of having both inherited IRA distributions and some 1099 income. Claimyr got me through to an actual IRS representative in about 30 minutes instead of the 3+ hours I was facing otherwise. You can see how it works in this video: https://youtu.be/_kiP6q8DX5c. The IRS agent confirmed exactly what I needed to know about my HSA eligibility with mixed income sources and even helped me understand some documentation I would need to keep in case of an audit.

I need to eat my words from my skeptical comment earlier. After struggling with HSA questions for weeks, I finally tried Claimyr yesterday out of desperation. I honestly couldn't believe it worked! After three weeks of failing to reach anyone at the IRS about my HSA situation, I was connected to an agent within 45 minutes. The agent confirmed that I could indeed make an HSA contribution based on the small amount of freelance work I did last year, even though most of my income came from investments. She also explained exactly what documentation I needed to keep. This saved me from potentially making a costly mistake with my taxes. If you're struggling with HSA questions that the general guidance doesn't answer, getting direct confirmation from the IRS was incredibly valuable.

One option you might consider is doing just enough gig work or freelancing to cover your desired HSA contribution. I was in a similar situation during a 6-month sabbatical and did some consulting work that generated about $4,000 - just enough to max my HSA that year. The key is that the earned income just needs to be equal to or greater than your HSA contribution. The actual money you contribute can come from anywhere. So you could earn $3,850 doing some part-time work, then use $3,850 from your inherited IRA distribution to make the actual contribution.

Has anyone considered whether a spousal HSA contribution might work in this scenario? If you're married and your spouse has earned income, they might be able to contribute to your HSA even if you personally don't have earned income.

This is such a common misconception! I see a lot of people thinking that having any kind of taxable income qualifies them for HSA contributions, but the IRS is very specific about requiring "earned income" or "compensation." The bright line rule is that investment income, inherited IRA distributions, dividends, interest, rental income, and other passive income sources don't count as compensation for HSA purposes - even though you'll pay taxes on them. If you're determined to contribute to your HSA during your career break, the freelance work strategy mentioned by others is really your best bet. Even a small amount of consulting or gig work can qualify you. Just make sure your earned income equals or exceeds your planned HSA contribution amount. One thing to keep in mind: if you do decide to generate some earned income through freelancing, you'll want to factor in the self-employment taxes (15.3%) when calculating whether it's worth it. But given the triple tax advantage of HSAs (deductible contributions, tax-free growth, tax-free qualified withdrawals), it often still makes financial sense, especially if you're in a higher tax bracket on your other income.