My husband retired and initially had a SERMA account that paid Health insurance premiums (we continued with a retirement HDHP through his employer). When the SERMA ran out this year, we first put our bank account credit card on the account to pay premiums, but then the employer's insurance person told him he could use his HSA to continue paying premiums instead of out of pocket. That meant setting up the HSA debit card to pay the monthly premium. We did that. Then, to avoid having to change payment cards, we deposited $7000 into the HSA so we could just use that card to pay. Well - my husband is under 65. His former employer knew that but still told him to use his HSA. I was looking at HSA rules today and saw that, in fact, my husband can not use his HSA to pay for insurance premiums and now we will have to pay tax on the money and pay 20% penalty. This is October - we just deposited the $7000 in May.
To date, the amount we have withdrawn for premiums is $10,000. Each withdrawal is identified as insurance premium. They are the only withdrawals this year. We do have around $1000 of health expenses that we paid out of pocket that I hope can offset some of the withdrawal even though the withdrawal identified as "ins premium".
Is there anything else we can do? Since $7000 of the money was deposited and then withdrawn this year is there any way to correct for that amount? I assume if we refund our HSA it will look like an excess contribution. I realize we will get a deduction for our $7000 contribution this year, but we will also be charged an additional 20%.
Update - I see you can rollover an amount from an HSA just like from an IRA. If my husband opens another HSA, can he "rollover" distributions that were made in the last 60 days. They would still be identified as an insurance premium in the HSA records, but we would just use our own money and put the same amount in the new HSA. ( assume you can't "rollover" to the same HSA you withdrew from.)
That would at least cover some of the distribution
