I know I will fail the testing period because I am changing jobs and getting a new (lets say HMO) plan in a few months. But I completely misunderstood the last month rule and added a lot of money that I shouldn't. Lets use examples and say it was the final 3 months of 2017, and I added $100 extra.
Accordingly, I plan to
- Adjusting my total eligible contributions manually on 8889-T
- Calculate an $850.00 maximum allowable contribution, since I will fail the Last Moth Rule testing period in 2018, requiring a full year of eligible coverage.
- File with my HSA account custodian to receive an excess contribution distribution.
- Receive a 1099-SA with code 2, indicating the distribution as income.
- Add the 1099-SA with code 2 to TurboTax as 2017 taxable income.
- Pay my taxes on the newly reported/reclassified income.
- Complete all of the above steps prior to the 2018 filing date of April 17th.
I should be penalty free, right?
However! I've also read (and heard from my HSA company!) a different opinion: as long as I have healthcare for the testing period, I'm in the clear. As in, "Oh, it's not my fault the healthcare options changed."
Here's the official publication I've found on the matter. https://www.irs.gov/publications/p969
Edit: I thought of another, easier way to summarize the question.
I will have HDHP coverage from October 1st 2017 through May 31st 2018. I will have HMO/PPO coverage for all other months. What are my maximum allowable contributions for 2017 and 2018?
