BillM223
Expert Alumni

Get your taxes done using TurboTax

As I see it, you have two choices:

 

1. Go through the process that the HSA custodian suggested, making sure that you request the withdrawal of the excess contributions by April 15th, even if the money doesn't get to you before April 15th. Document everything in case anyone ever asks.

 

2, Change the distribution code on the 1099-SA to "2". 

 

   #2 has one advantage and two disadvantages. The advantage is that you can do this now.

 

   The disadvantages are that (1) you are changing a tax form that the IRS has a copy of, so this may generate a letter from the IRS to you, and (2) you will have to calculate the earnings yourself for the period of time that the excess was in the HSA and enter it in box 2 of the 1099-SA. 

 

Hmmmn, I guess there is a third alternative.

 

Ask the custodian to treat the distribution as a Mistaken Distribution (see "HSA Mistaken Distributions" in the 1099-SA Instructions). Note that these are instructions to the HSA custodian, not you. Also note that they don't have to accept this request, so be nice.

 

You will have to send them a check for the amount of the Distribution.

 

Then, because you did not withdraw the excess in time (go through the HSA interview again, and tell TurboTax that you are not withdrawing the excess), it will be carried over to 2025. You will be dinged 6% of the carryover. But if you reduce your HSA contributions for 2025, the carryover will be placed on line 2 of the 8889 and used as a personal contribution. If you don't generate a new excess, then the carryover will be "used up" in 2025, with no further problems.

 

Oh, there is a fourth alternative  ("on the fourth hand..."), which is to extend your return. You then have until October 15th to withdraw the excess (you still have to get the money to the HSA custodian by April 15th). This means, of course, that you will either paperfile or look into how TurboTax e-files amended returns.

 

See the Instructions for the 5329.

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