How do I get excess contribution out of an hsa that has a zero balance?

[clevey]

Related question:

Excess $950 in my wife's HSA in 2018 because eligibility ended mid-year.

I contributed $1000 less than my limit in 2019 to my family HSA, thinking to attribute that $1k to hers and clear the excess, but since she no longer is HSA eligible, I can't see how to do that.  She has less than $950 in the account...if she withdraws that the remainder will stay on the books forever.

Do I need to file an amended 2018 return allocating more of the $8000 we were allowed as a single+family so there is no excess in her account, only in mine (then compensated for by my under-contribution in 2019 as intended)?  If so, do I file everything again or just f8889?  Or is there a simpler way?

[dmertz]

clevey, what you propose would eliminate the excess.  To do so you would need to file 2018 Form 8889 for each of you with the changes along with Form 1040-X where you can provide explanation of the change and show that nothing else changes on your 2018 tax return.  If your wife is under age 65, this seems to be the only reasonable alternative since making a regular taxable distribution of the remaining balance to eliminate the excess would result in a 20% early-distribution penalty on the amount distributed.

If you wife is over age 65 at which age the 20% early-distribution penalty no longer applies, withdrawing the balance of the account remainder of the account and having the remainder of the excess remain on the books forever would not necessarily be a bad way to handle it.  You could then make a personal, deductible contribution to your own HSA by July 15, offsetting the income resulting from the taxable distribution from your wife's HSA to bring you up to the maximum permissible contribution for 2019.  Still, if you have sufficient  qualified medical expenses within the near future to which to apply the balance of your wife's HSA, that might make more sense and just leave a larger excess on the books forever.

[clevey]

THANK YOU!  Ever so helpful.

[clevey]

followup questions (wife is over 65):

1.  if I leave it on the books, do I need to file an extra form every year for the rest of our lives?

2. if I file amended 2018 using turbotax, how do I update my 2019 turbotax return to show the excess is now in my name, without starting over?

[dmertz]

1.  Assuming that your wife is now qualified for Medicare, she will never again be eligible to contribute to an HSA, so it appears that it would not be necessary to file Form 5329 Part IV for you wife in the future.  The instruction at the top of Part IV says, "Complete this part if you, someone on your behalf, or your employer contributed more to your HSAs for 2019 than is allowable or you had an amount on line 49 of your 2018 Form 5329."  With a zero year-end balance in HSAs, your wife's last Form 5329 would have a zero on line 49. (This assumes that "an amount" means a nonzero amount.)

2.  In the HSA section where TurboTax asks you to enter or confirm these amounts, you would have to correct the amounts shown as your and your wife's excesses carried in from 2018.

[clevey]

Thanks again - most helpful.