I have a similar issue as some of the users in this thread, but with a few twists.
My husband retired in early 2023 from a fairly large company that provided health care via a HDHP and an HSA. His company is contracted with UMB Bank, Kansas City for HSA administration services, but sadly, just like HSA Bank, UMB bank will not calculate earnings on excess contributions and is not providing any guidance on how to calculate earnings on excess contributions. Here is the history and our issue:
In preparation for retirement and Medicare, effective 12/31/2022, my husband scheduled his HSA contributions so that only 5/12 (January-May 2022) of the allowable annual contributions would be deducted from his paycheck during 2022. Unfortunately, in September 2022, he signed on to the Social Security website to look at the Medicare application, filled in a few boxes, and did not submit. On December 1, 2022, on the advice of a SSA phone representative, he abandoned the old application and created a new application for Medicare and submitted it. My husband and I assumed the 6-month look back period would revert to June 1, 2022. To our surprise, he received his Medicare card with an effective date of March 1, 2022, which, when combined with his employer’s $750 contribution, created a total $2,074 over-contribution to his HSA. We visited our local SSA office to appeal the Medicare effective date but were told that the draft application was in “protected filing status,” and that the SSA could not change the effective date because of current regulations. The SSA employee further told us we could contact our congressional rep, but that the local office would give the rep the same information as he gave us.
Now, our issue. Based on my calculations, which agreed with the TurboTax calculations, my husband submitted a withdrawal request of $2,074 on UMB’s withdrawal form and checked the box for “Withdrawal Request--Excess Contribution Refund (UMB Code 6364)(UMB Code 6532 for interest earned).” The form had no separate line for excess contributions vs earnings. My husband received the check, dated 4/11/2023 by the 2022 tax filing date, so I reported the removal in TurboTax. I was puzzled why earnings had not been withdrawn, particularly because the form implied to me that the bank might do this, but overlooked the issue once our return was filed.
On November 29, 2023, we called UMB about the status of the earnings withdrawal and were informed that UMB does not calculate earnings on excess contributions and that we should contact a licensed tax professional. I would like to give this a try myself and have the following questions:
- Given that we’ve only withdrawn the excess contributions, not the earnings, should the calculation of the earnings include additional earnings on the not-withdrawn earnings? Also, should the calculation be completed in 2 parts, that is, calculate earnings on the excess contributions through the withdrawal date, then calculate earnings on the not-withdrawn earnings (May-November), and then add the two amounts together?
- If we submit the removal request for the earnings with the tax year indicated as 2023, what happens if UMB does not issue a check until 2024? Will we have to calculate the 6% excise tax on the un-withdrawn earnings at the end of 2023? Also, I plan to use the 11/30/2023 balance for the “closing balance” in my calculations. How would this be handled if the bank doesn’t issue the check until 2024 and 12/31/2023 earnings have posted? When we called UMB in March 2023 about the over-contribution, they said the request could take 30-45 days to process and there would be a $15 fee, so I assume there will be another withdrawal fee and a risk that the bank can’t turn this around until January 2024.
Many thanks.
