I made a qualified HSA funding distribution from an IRA in March 2016.I became ineligible on March 1 2017, When I read the IRS Pub 969 it says the now taxable income from that distribution is reported in the year you become ineligible. In my case March 2017. TurboTax is reporting this as 2016 income Am I misunderstanding the IRS instructions? If not, how do I work around this?
It's unfortunate that you missed completing the HFD testing period by less than a month. Failing to meet the testing period does not make it an excess contribution, but it does make the HFD taxable and subject to a 10% penalty on your 2017 tax return.TurboTax doesn't have a separate question for failing to meet the testing period for an HFD. However, this is treated the same way as failing to satisfy the testing period for the last-month rule. In 2017 TurboTax you'll indicate that you made a contribution under the last-month rule and that your entire HFD amount was Excess Contribution Amount Using the Last-Month Rule. ("Excess contribution" here is a misnomer, even in the case of actually using the last-month rule.)