I have been behind a couple years in taxes and am doing them now. I had contributed the full tax year's allowable amount ($3,450) at the end of 2018 out-of-pocket (after-tax), in December. I just found out recently that while my HSA was active, my accompanying HDHP wasn't technically active until January 1, 2019. It was in that window before the HDHP came online that I made my full out-of-pocket contribution. It seems very nitpicky, but in my interest in doing this very cleanly, it's opened up a huge can of worms that no one can seem to tell me the correct path for (not my HSA provider or any tax people I've contacted).
On my 2018 taxes, I have the full $3,450 listed as an "excess contribution". I've carried that forward for each year (since I haven't withdrawn the money), so each year I pay the excise fee. However this year (for 2021 taxes) I want to clean this up so I don't have to pay the excise or do anything special going forward.
I just want to fix this immediately, whatever the cost, so that I don't have to halt contributions or track unaddressed amounts across years. My HSA custodian said they cant help me because its past the window for the tax year where the "excess contribution" occurred, so they can't withdraw it as an excess contribution for me, and they're not even willing to calculate the gains on that contribution.
So I've calculated the rough gains from my initial investment. Do I just pull the full initial excess contribution + gains out, and then tell next year's Turbotax that I had an excess contribution, but that I'll pull it out by the tax deadline for 2021? The problem here is it seems to assume that the "excess contribution" is pre-tax, and so will tax me for promising to withdraw it. Is this right? Have I lost the right to my money being post-tax? Also, then do I report the gains as "other income"?
If I do the withdraw myself, I know the HSA custodian will report that I withdrew money, and the IRS may just see this as an early withdrawal and tax me (bad, since a lot of the withdrawn money would already have been taxed) as well as penalize me 20%. I'm happy to do this as a one time correction for my mistake if I have to, but obviously don't want to throw away money.
I don't think my 2018 taxes showed a deducted amount, I just have them reporting an excess contribution only (there were no employer contributions that year, only my "early" contribution).
What are my options here? Thanks in advance!
