How to handle rollover HSA

[wireless200]

Good afternoon,

I received my late wife's HSA in 2023 as a check.  I created and HSA at Fidelity and deposited the check into it.  I've received a 1099-SA from my wife's HSA account.  How to I handle this in TurboTax (Premiere).  It seems to want to keep trying to tax me for that like it was distribution.  It was distributed (but check never cashed by me) and directly deposited/rolled over to my own HSA. I can't find Form 8889 part II in TurboTax forms either which I believe handles some of that.  On the walk me through it part of turbo tax click I had an HSA it treats it like a distribution, if I check none of the above it ignores entirely.

[jtax]

Sorry for your loss.

What was the box 3 value? Was there a value in box 4?

If your 1099-SA box 3 is code 4 (payment to spousal beneficiary), TT should not make it taxable. You well see that show up on 8889 line 16/17. You should able to answer no to "did you use for medical expenses" and leave the rollover question blank.

If the box 3 code is "1" (normal distribution), then you need to tell TT that you rolled it over.

I'm not sure whether or not it is technically a rollover. See below, but I'd still enter it as a rollover especially if the check was made out to the new custodian.

That will remove it from your income as a rollover on the 8889 part II

[wireless200]

Thank you that helps. 

Box 3 is a 1.  I never cashed the check and instead handed it directly to Fidelity which went straight into the HSA account I created.   I'm wondering if I should ask for an updated 1099-SA with code 4 from the originating HSA company.  

If I click through and answer all the questions correctly about the HSA it never asks for the amount hence it just HSA summary is zeros.

Did you use your HSA?  No.

Did you inherit (answer no if from spouse)? No

Then it asked if I put money in an HSA which technically I did.  Then next screen asks the amount but says exclude rollovers so $0.00.

Then it gets to a screen with HSA summary and everything is zero'd.

I guess I'm wondering if the the 1099-SA sent to the IRS will get their attention and they say it should have been taxed then I have to 'fight' that and get documentation from Fidelity.  

I supposed I don't have any choice but to hope they don't because the distribution from my late spouse's HSA was in a check made out to me so they don't know what I did with it even though I immediately deposited it in a rollover HSA.

[jtax]

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Box 3 is a 1.  I never cashed the check and instead handed it directly to Fidelity which went straight into the HSA account I created.   I'm wondering if I should ask for an updated 1099-SA with code 4 from the originating HSA company.  

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Did you inherit (answer no if from spouse)? No

Why did you answer know to this? Didn't you inherit the HSA? Otherwise how did you get it?

If you were not the designated beneficiary of your spouse's HSA with the custodian, e.g. the estate was the beneficiary, then you cannot turn it into an HSA. See  

https://healthaccounts.bankofamerica.com/beneficiary.shtml

It is odd that they would send you a check if you were the designated beneficiary. I would think they would simply retile the account in your name or make you open a new account.

[dmertz · Accepted solution]

The HSA custodian should have handled this by nonreportable trustee-to-trustee transfer or by simply retitling the account because a spouse beneficiary automatically becomes the owner, but apparently they handled it as a distribution and rollover instead, so it was a distribution.

Enter the Form 1099-SA as received.  Indicate that you did not use the money for qualified medical expenses, then indicate that you rolled over the entire amount as jtax indicated.  This will make the distribution nontaxable.  Be sure to answer No when asked if you inherited this HSA (because it became yours by operation of law).

Code 4 is not to be used for a spouse beneficiary.

[dmertz]

Note that if the check was made out to Fidelity for the benefit of your HSA, not to you personally, the old HSA custodian should not have issued any Form 1099-SA and it would be appropriate for you to ask the old HSA custodian to issue a corrected code-1 Form 1099-SA showing that $0 was distributed.

[wireless200]

Where is it entered in Turbotax?   

If I go through the questions...

Tell us about you health accounts.  HSA.

Did you use it in 2023?  No

Did you inherit it?  No

Did you put money in the HSA?  If I use yes, it asks me to enter the amount with a note NOT to enter if it was a rollover from another HSA.  So, I say Yes (or No), the next question appears:  Did you have Medicare?  No.

Was I covered by High Deductible Health Plan?  No.

Did I overfund?  No

Then the summary comes up with zeros for everything: deductions, Total distributions, Taxable distros, etc.

Thus, in no place does it get entered.   Do I need to go to the forms and enter information directly in the 8889-T or elsewhere?

[dmertz · Accepted solution]

Did you use it in 2023?  Yes

TurboTax is asking in a poorly worded way whether or not you received a distribution.

[wireless200]

I got it.  Thank you!  Thanks for seeing this long thread too as well.