I have a question regarding excess HSA contributions. My local CPA firm is taking a position that doesn't make much sense to me and I'm looking for another perspective. I had $400 of excess HSA contributions a couple of years ago. I was carrying the excess forward/paying the 6% penalty and I want to eliminate the excess.
I was under the impression that you can eliminate the excess by applying it to a future year - i.e., if I contribute $400 less than the IRS max in the current year, I effectively eliminate the excess contribution. Form 5329 line 43 suggests that you can do this.
The CPA firm stated that it doesn't work that way. They stated that Form 5329 is used to calculate the penalty and the excess contribution remains in the account until you actually distribute it/remove it from the account (i.e., the act of contributing less than the max doesn't in itself eliminate the excess). The CPA firm stated that I can deduct the $400 excess in a later year, but this would happen in perpetuity every year until I actually removed the $400 (i.e., every year, the $400 shows up as a prior year excess contribution, I contribute $400 less than the max, and I claim that $400 excess).
This doesn't make any sense to me. My position is this -- if I contribute $400 less than the IRS limit in the current year and I claim the $400 excess in the current year, this eliminates the excess contribution. It is now effectively a current year contribution and the excess has been eliminated/removed. Is my position accurate?
The CPA firm's position seems illogical to me. From my perspective, it isn't this complicated. If you bust the limit in one year, you should just be able to contribute less the following year. This seems to be the IRS's intent, but I wanted to be sure.
Thanks!
Brooks
