Proper reporting of QHSAFD?

[Opus 17]

@dmertz 

I joined a single HDHP on July 1 and am over age 55. Using the last month rule, my HSA contribution limit is $5300.  I opened a private HSA because my employer doesn't offer a sponsored HSA even though they offer ab HDHP.  I have a 403b from a former employer at TIAA.  I rolled over $5000 from the 403b to a traditional IRA (also at TIAA), then rolled over $5003 from the IRA into the HSA as a QHSAFD.  I then contributed an additional $297 out of pocket.

At tax time, I only have one 1099-R from TIAA in the amount of $5000 with code G.  There is no 1099-R for the QHSAFD.  When reporting HSA contributions, Turbotax asks about contributions but does not ask about rollovers.  Line 10 of form 8889 is blank. 

Did I screw up or Turbotax?

[dmertz · Accepted solution]

"There is no 1099-R for the QHSAFD."

Assuming that the HFD occurred in 2025, the IRA custodian has until January 31, 2026 to issue the required code-2 (or maybe code-1) Form 1099-R showing $5,003 in boxes 1 and 2a, box 2b Taxable amount not determined marked and the IRA/SEP/SIMPLE box marked.

If the IRS custodian is a bank, given that bank employees are notoriously undertrained regarding IRA transactions it's entirely possible that internally they mistakenly coded the transaction as an IRA transfer instead of as a distribution.  If that's the case, they would fail to issue the required Form 1098-R and you would have to contact them to make the correction and issue the Form 1099-R.  If they decline to issue the Form 1099-R, you would have to file a substitute Form 1099-R (Form 4852) which would preclude you from e-filing.

[Opus 17]

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@dmertz wrote:

"There is no 1099-R for the QHSAFD."

Assuming that the HFD occurred in 2025, the IRA custodian has until January 31, 2026 to issue the required code-2 (or maybe code-1) Form 1099-R showing $5,003 in boxes 1 and 2a, box 2b Taxable amount not determined marked and the IRA/SEP/SIMPLE box marked.

If the IRS custodian is a bank, given that bank employees are notoriously undertrained regarding IRA transactions it's entirely possible that internally they mistakenly coded the transaction as an IRA transfer instead of as a distribution.  If that's the case, they would fail to issue the required Form 1098-R and you would have to contact them to make the correction and issue the Form 1099-R.  If they decline to issue the Form 1099-R, you would have to file a substitute Form 1099-R (Form 4852) which would preclude you from e-filing.

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The custodian is TIAA, a huge provider of retirement accounts mainly for education and non-profit employers (hence the 403b); I would be stunned if they don't know they must issue a 1099 for the HFD.  They sent me a notice that 1099-Rs were ready and there is only one on file.  Hmmm.   

[Opus 17]

@dmertz 

Do you have an instruction or a revenue ruling that says a 1099 must be issued for a distribution, rather than a transfer?

[dmertz]

The movement of funds from an IRA to an HSA is always a distribution from the IRA, hence the name "qualified HSA funding distribution."  See section 408(d)(9)(B) which defines this as a distribution from the IRA.  With regard to IRAs and HSAs, a nonreportable transfer refers to the movement of funds from an IRA or HSA to a like-kind account (IRS Notice 78-406), not to the movement of funds from an IRA to an HSA.

The general instructions for Forms 1099 indicate that Form 1099-R must be filed for distributions of $10 or more.

The instructions from Form 1099-R indicate that there is no special reporting requirement for an HFD, meaning that it's to be reported as an ordinary distribution as I described previously.  Although you requested an HFD, the IRA custodian has no way to know if the distribution actually qualifies as an HFD.  If it doesn't qualify (not eligible to have made that amount of HSA contribution), it must be reported on your tax return as if it's not an HFD.  Thinking again about the code in box 7 of the Form 1099-R, I think it should be code 1, not code 2, since code 2 would be giving special treatment to the distribution.

[Opus 17]

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@dmertz wrote:

  Although you requested an HFD, the IRA custodian has no way to know if the distribution actually qualifies as an HFD.  If it doesn't qualify (not eligible to have made that amount of HSA contribution), it must be reported on your tax return as if it's not an HFD.  

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That's not entirely true in this case.  The HSA bank had a form to request an HFD that I had to send to the IRA custodian.  And looking back, I am reminded that TIAA held up the transfer for "missing information" -- when I called them, they couldn't find anything wrong and sent it through again.  But the rest of the information is well taken.  I guess I will wait until after 2/1 and then call them and see what they will do.  I would really prefer not to file by mail (although this year I will owe slightly so it won't delay a refund).