I front-loaded my HSA contributions this year ($3,600 + $1,000 catch-up). I have not made any distributions from my HSA account. I lost my HDHP plan in April. I understand from the proration calculation that my contribution limit is $1,150 ($4,600 * 3/12), which leaves me with a $3,450 excess contribution. In reading IRS Pub 969, it looks like I can request an HSA Excess Contribution correction from my HSA custodian of my excess contributions and earnings, and thus avoid the 6% excise tax.
However, I am confused by the following points in Pub 969:
1. Testing period in the last-month rule:
"If you fail to remain an eligible individual during the testing period, for reasons other than death or becoming disabled, you will have to include in income the total contributions made to your HSA that wouldn’t have been made except for the last-month rule. You include this amount in your income in the year in which you fail to be an eligible individual. This amount is also subject to a 10% additional tax. The income and additional tax are calculated on Form 8889, Part III. "
2. This caution note under the Excess Contributions section:
"If you fail to remain an eligible individual during any of the testing periods, discussed earlier, the amount you have to include in income isn’t an excess contribution. If you withdraw any of those amounts, the amount is treated the same as any other distribution from an HSA"
Based on the above points, what should I do? Are the above points still applicable if I corrected my excess contributions and earnings?
Thanks.
