Health Savings Account - Credit Union gave me incorrect funds transfer instructions now I have a situation.

[MaryTL]

Hi,

My issue pertains to my HSA accounts and a funds transfer that went awry.

I have two HSA accounts, one through my employer and the other through a credit union.

When I opened the credit union HSA last year the credit union employee gave me incorrect information regarding fund transfers.

I specifically asked (I have this in writing) if I needed to complete a funds transfer form for the credit union to pull the funds from my employer HSA.

The credit union employee responded “No, just link the accounts and initiate an online transfer”, which I did.

The credit union pulled the funds directly from my employer and placed them into the new HSA.

A few days later I received an email from the credit union stating that the employee was incorrect and that I needed to complete a transfer form however the funds already transferred.

My employer HSA shows this transfer as a “normal distribution” hence form 1099 SA.

The bank apologized and stated that they will show this transfer as a “roll over” so I am expecting a form 8889.

Now as I look at Turbo Tax I have NO IDEA how or where to explain why I have two forms for the same funds and no medical expenses.

How can I go about showing the IRS that this was not a normal distribution and that the funds went directly into a new HSA?

Do I provide statements, the rollover form etc? And must I send these (and my taxes) through the mail instead of electronically?

Any suggestions are greatly appreciated.

[dmertz]

As long as you did not do any HSA rollover in the 12 months prior to the distribution from the employer's HSA and will not do one in the 12 months following the distribution from the employer's plan, this is not a problem.  The employer HSA plan will send you a code 1 Form 1099-SA.  When you enter this Form 1099-SA into TurboTax in the HSA section, indicate that you did not use the distribution only for medical expenses, then answer to indicate the amount of the total gross amount was used for medical expenses and the amount that was rolled over.  TurboTax assuming that all of it was either used for medical expenses or was rolled over, TurboTax will treat the entire amount as nontaxable.

[MaryTL]

Hello and thank you Dmertz,

I haven't rolled over any HSA funds prior to this, thankfully.

Again, thank you for the reply - I am much relieved.