Hello and TIA for reading this. I'm just trying to verify the proper way to withdraw excess HSA contributions across two accounts. Reason for this hassle was that I forgot the HSA contribution limit pro-rata rule, and switched jobs/insurance away from an HDHP to PPO in December 2023 (edit: last HDHP coverage day was Nov 30). So my 2023 HSA limit for 11 months of HSA coverage is $3529.17 rather than the full $3850.
Amounts below are rounded for simplicity. I have two HSA accounts and plan to fill the reversal forms ASAP (prior to tax filing deadline).
Account "A":
-Payroll contributions from Jan-Nov 2023 job.
-My last payroll contribution for that job put me over the pro-rata limit by $20. Fortunately there is no fee for refund.
-My position of this account since inception has always been in cash with 0% interest rate.
-This provider DOES NOT calculate earnings on excess withdrawal on excess contribution reversal.
Account "B":
-Separate account with bulk of HSA assets, pretty much all invested.
-Again before realizing the pro-rata limit, I contributed $300 excess to this account direct from a checking account (post-tax money).
-This provider DOES calculate earnings on excess withdrawal when doing an excess contribution reversal.
Does the following sound right?
- Fill out Excess Contribution Return form for Account/Provider A for $20. Because this account was all cash with no interest, my NIA is $0. I guess I got lucky here, since they don't calculate excess earnings.
- Fill out Excess Contribution Return form for Account/Provider B for $300. My NIA calculation on this amount as of today comes out to be ~$20. So I would have to have $320 liquid (or more if later on) in this account for the refund.
- Account A's excess $20 payroll contribution return becomes taxable income, correct? But is that taxable for the year 2023 or 2024?
- Account B's NIA of $20 (or whatever it ends up being when Provider B completes the process), will be reportable as taxable income. Similarly, would that be income for tax year 2024 on a 1099-SA issued in 2024?
- Account B's base excess contribution return of $300 was made with after-tax dollars initially (not payroll deduction). Does it end up being subject to income tax on the 1099-SA that gets issued with it for 2024?
Anything I'm missing here? Thanks again!
