I have an old HSA through a previous employer that was doing nothing but incurring large monthly fees. We recently opened a new HSA through my wife's employer. I erroneously believed that I could rollover my old HSA funds to her custodian, and thus closed my old account. However, I now understand that I cannot simply "rollover" these funds to her account since HSAs are tracked by SSN.
So now I have a check made out to me and I want to ensure that I do not have to recognize these funds as income nor pay the 20% penalty. I COULD go back through our bills and see if we have enough medical bills to soak up these funds, but that would be time-consuming.
Would it simply be permissible to cash this check and then contribute an identical amount to my wife's HSA? I cannot find any guidance on whether contributions to a different HSA constitute "qualified medical expenses" for which one can spend HSA distributions. Any guidance is appreciated!
Since it has been less the 60 days since the distribution from your own HSA account, you still have time to complete rollover of that distribution to another HSA account in your own name, avoiding tax and penalty on the distribution from your original HSA account. Other than spending the money on qualified medical expenses, a rollover is the only way to avoid the tax and penalty. You can open the account with any HSA custodian that allows individuals to open HSA accounts; there are a number that have very low fees and offer a variety of investments. Since you were not satisfied with the fees of the old HSA custodian, I would look elsewhere.
A return of mistaken distribution is something else, not involved
here. I think I misunderstood your question as indicating that you had
deposited the distribution from your HSA account into your wife's HSA
account, but now I see that that is not the case, so ignore my question
about a return of contribution.
While you can make a separate deductible contribution to your wife's HSA (assuming she is an eligible individual), you'll have to treat the distribution from your own HSA separately.
Has it been more than 60 days since you received the distribution from your own HSA account?
Did you remove the money from your wife's HSA as a return of contribution, adjusted for investment gains or losses while in her account?
Also, a contribution to an HSA is not a qualified medical expense. See IRS Pub 969 Chapter 2 for details on HSAs:
<a rel="nofollow" target="_blank" href="https://www.irs.gov/pub/irs-pdf/p969.pdf">https://www.irs.gov/pub/irs-pdf/p969.pdf</a>
It has not been more than 60 days since the distribution from my HSA. We did not remove any money from my wife's HSA. In fact, it has a zero balance at the moment. It appears that you can request to "return" mistaken distributions from a custodian but I fear that might not be an option here. My HSA was closed and liquidated and since I am not with my previous employer any longer, I questions whether I would be able to re-open it.
I had hoped that I could just contribute this distributed amount to my spouse's HSA and NOT take a deduction for it (since I took a distribution when I first contributed to my account). But it sounds like that may not be an option.
If my old HSA custodian refuses to re-open the account and accept the mistaken distribution, is my only option substantiating our qualified medical expenses over the past few years (since my HSA was original established) up to the amount of the distribution?
Since it has been less the 60 days since the distribution from your own HSA account, you still have time to complete rollover of that distribution to another HSA account in your own name, avoiding tax and penalty on the distribution from your original HSA account. Other than spending the money on qualified medical expenses, a rollover is the only way to avoid the tax and penalty. You can open the account with any HSA custodian that allows individuals to open HSA accounts; there are a number that have very low fees and offer a variety of investments. Since you were not satisfied with the fees of the old HSA custodian, I would look elsewhere.
A return of mistaken distribution is something else, not involved
here. I think I misunderstood your question as indicating that you had
deposited the distribution from your HSA account into your wife's HSA
account, but now I see that that is not the case, so ignore my question
about a return of contribution.
This is helpful. While I do not want to sign up for health insurance + HSA through my employer (since we already have family coverage through my spouse), I did not realize that I could independently open an HSA outside of the employer-sponsored coverage option. I will look into that. Thank you!
As with an IRA, just be aware that you can only roll over one HSA distribution in a 12-month period. By rolling over this distribution, you won't be able to make a distribution from the new HSA and roll it over until a full 12 months has elapsed since the date of the distribution that you are now rolling over. Opening an HSA with a custodian to accept a rollover is essentially the same as would be done with an IRA to receive a roll over of retirement-account distribution.