Excess HSA Contribution on Closed Account

[mgallian]

For the first 6 months of 2021, we were in a HDHP and contributing to an HSA.  Due to a job change mid-year, we were not enrolled in a HDHP for the last 6 months of the year but continued to use the funds in the HSA account to cover qualified expenses.  The account was depleted before the end of the year.  Beginning 1/1/22, we have re-enrolled in a HDHP and have established a new HSA.

In preparing for our 2021 taxes, it was discovered that we have an excessive contribution of $250 from the first half of 2021.  Since the prior HSA account in which the excess contribution was made is no longer available, can a distribution of excess funds be requested from the new account, or can the excess contribution only be remedied through the original account?

Thank you

[BillM223 · Accepted solution]

Since HSAs tend to be treated in the aggregate, I would say, yes, you can withdraw money from the new HSA to cover the excess to the old HSA. BUT BE SURE TO MAKE THE WITHDRAWAL BEFORE April 18, 2022(!)

By "treated in the aggregate", I mean that the HSA annual contribution limit covers all your HSAs, even if you have more than one of them. That is, if you had a Family HDHP policy, your limit would be $7,200 to your HSA(s) in the aggregate, no matter how many you had.

Also, when you start a second HSA within 18 months of the last date that the first HSA had a balance, then the start date for the second date is considered to be the same as the start date for the first HSA. Remember this, because this may affect you in the future.

If you look at form 8889, you'll see that it doesn't ask about individual HSAs, just the aggregate reporting, so go ahead and tell TurboTax that you will withdraw the entire excess by the due date of the return (if you haven't already), then report the withdrawal of excess contributions to the custodian for the new HSA. Make sure that you have at least $250 (plus any fees) in the new HSA before you do this, of course.