@glesieutre wrote:
@Opus 17
1. Correct, a qualifying HDHP for HSA contributions.
2. I own the HSA. My wife is not employed and does not have a separate HSA.
3. In 2023, we were both covered under my employer's HDHP for the full year. Medicare coverage will soon apply retroactively for both of us: for her, starting October 2023; for me, starting November 2023. I made HSA contributions in October, November, December -- thinking that Medicare coverage would start in January 2024. (That's what my employer told me would happen, incorrectly.)
Thanks.
If you enroll in Medicare more than 6 months after your 65th birthday, your enrollment is backdated 6 months from when you apply. If Medicare says November 1, then you are ineligible to make HSA contributions for those months. Your contribution limit for 2023 would be $7750 + $1000 catch up ÷ 12 = $729 per month x 10 months = $7291.
Your wife's enrollment does not affect your contribution limits.
If you contributed less than $7291, you don't have an excess, even if some of the contributions were made after November 1. What counts is the total for the year, not the exact date of the contributions.
Since it is after the due data and you did not have an extension, the option to perform the special withdrawal of excess contribution is not available to you. If you contributed more than $7291, you must first file an amended 2023 return to report the excess and pay the 6% penalty.
Then you have two options for the excess.
You can make a regular withdrawal and not use it for medical expenses (in other words, if you had a $1460 excess and your qualifying medical expenses were $2000, you would withdraw $3460). The withdrawal will be subject to income tax and a 20% penalty. Because this withdrawal is performed in 2024, it will be reported on a 2024 1099-SA and reported on your 2024 tax return. (You do not need to remove the earnings on the excess, that only applies to the special procedure that you can perform before the deadline—which is passed. You simply make a withdrawal that is not used for medical expenses so that you pay the tax and 20% penalty.)
Or, don't withdraw the excess, and pay as you say, a perpetual 6% penalty. But the penalty stops when the account balance is zero. And because of the 20% plus regular income tax (12% to 22%), it would probably be the case that if you expect to spend the account down to zero within 5 years, you would pay less overall by paying 6% per year. If you plan to hold the account longer than 5 years, you will be better off withdrawing the excess all at once at paying the 20%.
