HSA Deduction for part year HDP participation

[Machine75]

I participated in a HDP/HSA plan until my retirement in October after which I became eligible for Medicare.

TurboTax is calculating that almost all of the contributions to the HSA during 2020 represent an Excess Contribution.  Is that function calculating correctly?

[dmertz]

Given correct responses to TurboTax's questions, TurboTax's calculation of the maximum contribution will be correct.

If your HDHP plan was self-only and you are over age 55, your maximum HSA contribution would be

$4,550 * 9 / 12 = $3,412.50.  This is the result that you will see (rounded to $3,413) if you tell TurboTax that you had self-only coverage for January through September and Medicare for October through December.

[Machine75]

Thank you for reply.

In my particular case, my max allowable contribution is $6,750 ($8,100/12 months * 10 months) which is exactly the amount contributed to the HSA.  However, TurboTax is calculating that there is an Excess Contribution of $5,917.  Can you kindly provide further direction?  I must be doing something incorrectly.

Machine75 

[dmertz · Accepted solution]

In addition to entering a $6,750 HSA contribution for you for having family HDHP coverage for 10 out of the 12 months, it seems that you've also entered a $6,750 HSA contribution for your spouse for having family HDHP coverage for 10 out of 12 months.  However, the regular 12-month family contribution limit of $7,100 is shared between the two of you, so the maximum permissible contribution with each of you being eligible for only the first 10 months of the year is

($1,000 + $1,000 + $7,100) * 10 / 12 = $7,583.   With a $6,750 contribution by each of you entered totaling $13,500, that's $5,917 over the combined limit.

Note that TurboTax's initial display of the maximum contribution permitted by each spouse is determined without regard for the other spouse's contributions.  Only after you've entered all of the contribution amounts can TurboTax determine any actual excess contribution based on the combined contributions.

What this amounts to is if you allocate all of the family limit to you so that you are eligible to make the $6,750 contribution, that would leave only your spouse's catch up contribution of $1,000 * 10 / 12 = $833 that your spouse could contribute.

[Machine75]

Thank you again.  Very helpful.