Enter Last Year's Excess Contribution (to HSA - references line 48 of 2023 form 5329)

[eoltman]

My wife had HDHP with a prior employer until 2021.  Somehow there was an excess $194 contribution made that I did not rectify in time.  Nothing was contributed since 2021.   So, each year we paid 6% penalty on that excess contribution.  We did not start using the HSA for medical expenses until 2024, in part because we thought this issue would get resolved.  In 2024 we withdrew $379.25 for medical expenses.  We entered the 1099-SA info (not inherited, put no money into an HSA in 2024, no medicare in 2024, not covered by a HDPD in 2024)  Then we get to "Enter Last Year's excess Contribution - this from 2023 Form 5329, Line 48: and the $194 contribution that's been there since 2022 is still there...  Here's the problem: the next screen says "You may want to widthdraw money from your HSA".  It appears that the only choice available s "No, we're not going to make a witdhdrawal" - the other ones say its too late.  What I would like to do is make that $194 excess contribution go way.   What do we do?  Will we be paying 6% on $192 every year till we die?

Any help greatly appreciated!

Many thanks!

Fred 

[BillM223 · Accepted solution]

No, no, do not despair.

First, if your wife expects to be under an HDHP plan (and have no conflicting coverage) anytime in the near future, then the carryover can be "used up" as a personal contribution (lines 2, 8889) in the next year that she has HDHP coverage. Of course, she will be assessed that 6% penalty every year until this happens.

At any time, however, you can make a distribution and NOT use it for qualified medical expenses - in the case, TurboTax will take the amount in Box 1 of the 1099-SA and add it to your income, and hit you with a 20% penalty. But, at least, the carryover will be gone and no longer the cause of the 6% penalty.

Because this latter solution is relatively expensive, you need to make a decision on what is the best choice. But if you have plenty of cash in the HSA that you want to protect from that annual 6% dinging, you do have a way to just cut it off.