HSA excess contribution due to Medicare enrollment. Do I need to ask for additional money back from my HSA account or not?

[Questionasker]

Early in 2018, by May 4, 2018, I maxed out my contribution to my HSA account.   In late November I enrolled in Medicare.  Part B became effective 12/1/18, Part A became effective 11/1/18.  I made payments to my private HDHP plan (Blue Cross/Blue Shield) under COBRA to cover through end of November 2018.

When doing taxes I learned that apparently I needed to have some of my HSA money returned to me from the account since I was not covered by private insurance the entire year.  I had 1/12th returned since I paid private insurance January – November and Medicare Part B became effective December 1.  However since I see that Medicare part A apparently went into effect retroactively the beginning of Nov, even though I didn’t sign up for it until late November, must I now also have another 1/12th sent back to me from my HSA account to avoid excess contributions?  Or is the 1/12th I had returned to me already sufficient to avoid excess contributions?

[Questionasker]

(One further detail: My spouse has continued to be covered by the HDHP plan (BC/BS) under COBRA which I previously had with my employer, but due to my going on Medicare at age 65 I have now dropped off of it.)

[dmertz · Accepted solution]

You are an HSA-eligible individual for only 10 months of 2018, so you are only permitted 10/12 of the annual limits.  Since you have only had one-month's worth of your excess contribution returned so far, you have to request another return of excess contribution for the other month's-worth of excess.  The amount distributed is likely to be a bit different due to a different amount of earnings required to be distributed with the returned contribution.

If you spouse was covered by an HDHP plan, you spouse can contribute to your spouse's own HSA.

[Questionasker]

Thank you for clarifying/confirming in the first 1st part of your answer.

I had been wondering if my wife still being on the plan constituted “family HDHP coverage” (page 5 IRS Pub 969) and if so, even if I was not considered an eligible individual at the end of the year, perhaps my wife being covered could be considered “family coverage.”  But maybe that is not the case if she is the only one left on the plan.

Regarding the last sentence of your answer, the mention of my wife being able to contribute to her own HSA if covered by a HDHP, has triggered two questions:
1) Would she be able to contribute to her own HSA for herself for the final portion of 2018 for which I became ineligible?  
2) Would she be able to do so for the portion of 2019 that she will still be on COBRA HDHP?  (for example, if she stays covered with that HDHP for 9 months in 2019, then can she do a contribution for 9/12 of the year of the allowable amount for one person?)

(I am the only one who had been employed and who opened the HSA account, and we had family HDHP coverage for most of the year.  However I dropped off of the BC/BS HDHP by starting Medicare at the end of the year.)

[dmertz]

A "family" HDDP plan is a plan that covers more than one individual.  Any plan that covers only a single individual on the first day of the month is self-only coverage for that month.

1)  Yes.  Since she had self-only coverage for those two months, her contributions would be governed by the limits associated with having on self-only coverage,
2)  Yes.  If she has self-only coverage for 9 months, her maximum contribution will be 9/12 of the annual limit.

TurboTax will calculate the separate maximum contribution for each spouse after you enter the type of coverage for each spouse for each month, but will then determine if you've made any combined excess contribution after you enter the actual amounts contributed.  Since you appear to be using the CD/download version of TurboTax you can create test tax returns to try various contribution amounts for each spouse.

[Questionasker]

Great, thank you much!  Regarding “1) Yes. Since she had self-only coverage for those two months...”  I want to make sure that is true regarding 2 months rather than one.  In other words, yes it is true for sure for December—”she had self only coverage.”  

However I want to understand if that means my wife had “self-only coverage” for November, or would that be considered “family coverage” for November?  (Since we paid for coverage for both of us for November for HDHP (BC/BS) under COBRA.  However I was also covered by Medicare Part A for November, and therefore limited for HSA contribution amount for the year. So maybe that cancels out the fact that we paid for "family coverage" in November?)

[dmertz]

She had family coverage for November.  That means that she can contribute 1/12 of the family limit for November and 1/12 of the self-only limit for December.

[Questionasker]

Thank you much!