Solved: How can I remove excess contribution from HSA when I do not have sufficient funds in my HSA account? I don't have a HDHP now either.
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How can I remove excess contribution from HSA when I do not have sufficient funds in my HSA account? I don't have a HDHP now either.

My Employer accidentally made contributions to my HSA account for 2 months when I was not in HDHP plan. That caused an excess contribution to HSA. But now I don't have sufficient balance in my account to do a excess contribution removal. What should I do now?
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Level 13

How can I remove excess contribution from HSA when I do not have sufficient funds in my HSA account? I don't have a HDHP now either.

1. Withdraw as much of the excess as you can. That will reduce the carryover and the penalty.

2. Contact your HSA administrator prior to April 17, 2018 and ask for the return of excess contributions.

3. The HSA administrator will send you a check for the excess withdrawn.

4. The entire amount of the excess (withdrawn or not) will be added by TurboTax to Line 21 (Other Income).

5. Form 5329 will be added to your return to calculate the 6% excise tax on the excess that is carried over.

6. However, note that the penalty is 6% of the smaller of the amount carried over or the fair market value of the HSA on the last day of the tax year.

7. So, for 2017, you will pay a penalty, because your HSA balance was not down to zero. However, for 2018 and beyond, the penalty will be zero because your HSA balance is zero.

8. Not until you get HDHP coverage again will you have to worry about the excess that was carried over and never used up. To use it up, in the first year that you get HDHP coverage again, make sure that you reduce your HSA contributions to be (annual HSA contribution limit minus carryover amount) - your carryover amount will be included as a "personal" contribution and will be charged off against the limit in that year. Once that happens, you're done with the carryover. 

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Highlighted
Level 13

How can I remove excess contribution from HSA when I do not have sufficient funds in my HSA account? I don't have a HDHP now either.

1. Withdraw as much of the excess as you can. That will reduce the carryover and the penalty.

2. Contact your HSA administrator prior to April 17, 2018 and ask for the return of excess contributions.

3. The HSA administrator will send you a check for the excess withdrawn.

4. The entire amount of the excess (withdrawn or not) will be added by TurboTax to Line 21 (Other Income).

5. Form 5329 will be added to your return to calculate the 6% excise tax on the excess that is carried over.

6. However, note that the penalty is 6% of the smaller of the amount carried over or the fair market value of the HSA on the last day of the tax year.

7. So, for 2017, you will pay a penalty, because your HSA balance was not down to zero. However, for 2018 and beyond, the penalty will be zero because your HSA balance is zero.

8. Not until you get HDHP coverage again will you have to worry about the excess that was carried over and never used up. To use it up, in the first year that you get HDHP coverage again, make sure that you reduce your HSA contributions to be (annual HSA contribution limit minus carryover amount) - your carryover amount will be included as a "personal" contribution and will be charged off against the limit in that year. Once that happens, you're done with the carryover. 

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