@jcaps123 wrote:
One concern is that the distribution was done as direct transfer rather than a normal distribution so code 7 isn't right. I hope that differences in the 1099-R box 7 code won't get flagged by the IRS.
If you look at the code, an HSA funding distribution is specifically called a "distribution". 26 USC §408(d)(9) to be exact. Distributions from an IRA would be code 1 or in your case, code 7. Even though it is done by direct bank transfer, it is still a "distribution" as defined by law. If your IRA broker used code G, you need to manually change it in Turbotax to code 1 or 7 to get the program to handle it correctly. (I am in the exact same situation.) At worst, you would get a letter from the IRS asking for clarification, and it's an easy situation to explain. In other words, the problem is that the broker used the wrong code. Turbotax is correct in not populating the QHSAFD questions for a code G.
Also, it's worth noting that the only real value of a qualified HSA funding distribution from an IRA is to do it before age 59-1/2, so you save the 10% penalty. If you are over age 59-1/2, you could just as easily have taken a normal withdrawal (taxable) and then made a direct contribution to the HSA in the same amount (which creates a tax deduction that offsets the tax.)
