Already now I screwed this up ... but looking for a soundboard here on any potential options to minimize the damage.
Scenario ...
1) Retired Feb 2022 using employer COBRA to continue same HDHP.
2) Fast forward to JUL/AUG 2023, looking at insurance plan options since COBRA ends 01 OCT 2023.
3) Original plan was to use an ACA HDHP plan so initiated a "ONE TIME TRAD IRA DISTRO TO HSA" in early SEP 2023 for full max amount $3850 (single) + $1000 over 55 (but not 59 1/2 yet) given no 2023 contributions had been made. According to information, no 10% penalty for under 59 1/2 so long as you meet the test period requirements.
4) Prior to COBRA end, opted for a non-ACA Tri-Term plan (non-HDHP) for its national coverage and better emergency coverage. What I understand from my insurance broker, outside of your ACA bubble, ER is covered for "life threatening emergencies only". I spend alot of time outside what would be my ACA bubble doing things with higher risk of injury than while home.
5) Therefore, I have failed the test period (12 months AFTER contribution) and the dubious "60-day return option" has lapsed. So the $4850 contribution will be considered an "early IRA distribution (without exception)" to which I will pay normal income tax plus the 10% "before 59 1/2" penalty ($485).
6) And to rub salt in the wound, since am not on an HDHP plan the last three months of 2023, my max contribution for 2023 would be $3638, so there will now be an excess-contribution for 2023. My understanding, the excess will need to be withdrawn prior to 15 APR 2024. Am assuming tax penalty if it remains? And just for posterity sake, TT does take into account age so it is pro-rating the max contributions based on "catch-up" maximum ... meaning 9/12*4850 = $3638.
7) Conclusion: This will now be considered a prior to 59 1/2 Traditional IRA distribution to an qualified HSA vs the "one-time no-tax penalty any age rollover". From an IRA perspective, it will incur income tax and 10% penalty. From the HSA perspective, I will need to withdraw the excess-contribution prior to 15 APR 2024. The withdraw would just come back to me as cash, not a return to the IRA.
😎 Did I miss anything? (:-p)
9) ARE THERE ANY OPTIONS TO REDUCE THE IMPACT OF THIS SCREWUP?
Thank you.
LGinMO
