HSA distribution

[Benjamine]

I closed a Benefit Wallet HSA account in 2019 due to ongoing problems with them.  I transferred all funds to another HSA provider.  In 2020, I realized BW had overcharged me $35.75 for monthly maintenance fees on a "closed account".   Now, I have received a 1099-R from BW indicating a $35.75 gross distribution, Code 1.  I received two checks and cashed them both.  

Do I now need to make an HSA prior year contribution of $35.75 to the new HSA so I am not penalized the 20%?   I do not have any outstanding medical expenses for 2021 that I can attribute this money to.  BTW, I am turning 65 this year and although I have ACA care, I did not plan to contribute to my HSA.

Any advice would be helpful. 

[RobertB4444]

The deadline to make an HSA contribution for 2021 is April 15 of this year.  Just go deposit the $35.75 into your HSA and enter it in your 2021 return as a 2021 contribution.  

[Opus 17]

You need to consider this as a "rollover" situation.  You must make the rollover to the new account within 60 days.  It is NOT a new contribution and you do NOT take a tax deduction for it.  You will likely get a 1099-SA for the money, when Turbotax asks what you did with it, report it as a rollover.  (Make sure you tell the new HSA bank this is a rollover and not a new contribution.)

If you report this as a new tax-deductible contribution (for either 2021 or 2022), then the withdrawal counts as a non-qualified withdrawal and you will pay income tax plus a 20% penalty, unless you can apply it toward medical expenses for the year the check was issued to you.  Or, if it has been more than 60 days since you got the payment from BW, then it is a non-qualified withdrawal and you are stuck with the taxes.  What you do with the money after is up to you and will have no affect on the taxability of the withdrawal.  

Did you really get a 1099-R? That's incorrect.  Did you mean to say a 1099-SA?

[Opus 17]

By the way, did you get the check in 2020 or 2021?  What year is the 1099-SA for?  If the 1099-SA is for 2020, you would have to amend your 2020 return and pay the tax on that return.

[Benjamine]

Appreciate the detailed explanation in your reply.  You are correct - I received a 1099-SA for calendar year 2021.  Both checks were received in Jan/Feb of 2021. 

Thanks so much! 

[Benjamine]

Thanks for your reply.  Obviously, you and Opus17 do not agree on the same course of action.  I'll just "eat" the 20% penalty and call it a day!  Hopefully, any TT users will be wary of Benefit Wallet.  Closed the account in 2019 and here I am still dealing with their incompetence in 2022.