Impact of Using Traditional IRA $ To Set Up HSA & HSA Plan

The one time allowable use of traditional IRA to set up an HSA (which does require a high deductible health plan that is HSA eligible) does not count towards MAGI or your AGI because it is already tax deferred savings (IRA) being transferred to another tax deferred savings (HSA), but HSA contributions are usually deductible from MAGI and AGI.

A qualified distribution from an IRA into an HSA is not taxable or tax deductible, but it does count towards your maximum HSA contribution limit for the year.

From the IRS 2016 Publication 969:
"Qualified HSA funding distribution. A qualified HSA funding distribution may be made from your traditional IRA or Roth IRA to your HSA. This distribution can’t be made from an ongoing SEP IRA or SIMPLE IRA. For this purpose, a SEP IRA or SIMPLE IRA is ongoing if an employer contribution is made for the plan year ending with or within the tax year in which the distribution would be made.
CAUTION! The maximum qualified HSA funding distribution depends on the HDHP coverage (self-only or family) you have on the first day of the month in which the contribution is made and your age as of the end of the tax year. The distribution must be made directly by the trustee of the IRA to the trustee of the HSA. The distribution isn’t included in your income, isn’t deductible, and reduces the amount that can be contributed to your HSA. The qualified HSA funding distribution is shown on Form 8889 for the year in which the distribution is made.

You can make only one qualified HSA funding distribution during your lifetime. However, if you make a distribution during a month when you have self-only HDHP coverage, you can make another qualified HSA funding distribution in a later month in that tax year if you change to family HDHP coverage. The total qualified HSA funding distribution can’t be more than the contribution limit for family HDHP coverage plus any additional contribution to which you are entitled."