BillM223
Expert Alumni

Retirement tax questions

May I assume that when you did the HSA interview, that you indicated to TurboTax that you did not have HDHP coverage in 2019? And that TurboTax then told you that the $7,000 contribution was all in excess?

 

If so, please contact your HSA administrator before April 15th(see footnote***) and tell them that you would like to request a "withdrawal of excess contributions" (use this exact phrase). If they accept this, then the HSA administrator will send you a check for the $7,000, which would be just as if you had taken an IRA distribution on which you pay income tax.

 

This should let the HSA administrator update their reports to the IRS, that you made a contribution but withdrew it before the deadline (the due date of your return), and you should also avoid any penalty.

 

The only problem is if you no longer have $7,000 in the HSA for the HSA custodian to send back to you. If this is the case, withdraw as much as you can to avoid the penalty.

 

Note that you do NOT want to close your HSA just because you no longer have HDHP coverage. You want to keep using your HSA to pay for qualified medical expenses, until the funds run out. Any distributions for reasons other than payments for qualified medical expenses are hit with a 20% penalty, so why do that?

 

***As of this edit, the IRS has announced that the filing date has been moved to July 15th, but has not updated the myriad of rules to clarify that this includes any regulations that depend on the due date of the return. So while the IRS will probably not mind you contributing to your HSA until July 15th, there is no guarantee that your HSA custodian - lacking written instructions from the IRS - will accept such a contribution after April 15th. In these uncertain times, it would seem prudent to make such a contribution by April 15th in any case. 

 

[Edited 3/24/2020 1:59 pm CDT - added July 15th note]

**Say "Thanks" by clicking the thumb icon in a post
**Mark the post that answers your question by clicking on "Mark as Best Answer"

View solution in original post