Thanks for replying dmertz
I thought the income is reportable in 2017 too. The problem is in TurboTax, there is a question asking if you meet all the requirements for the qualified HSA funding distribution. It's in the Federal>Deductions>Medical>1099-SA, HSA...section. Once I answer no, the program automatically adds the 10% penalty to the 2016 tax due, and the distribution amount to the 2016 income. How do I undo this? Should I answer yes, I meet all the requirements, then manually edit the 8889 form? Will everything else update correctly if I do this?
I can't use your suggestions for alternate reporting since the 1099-R has already been prepared by teh custodian and sent to the IRS. Also there is no last month rule for this type of distribution as far as the IRS is concerned. The testing period begins with the month you make the distribution.
