Do I need to file 5329 after removing excessive HSA contribution

[hhh8]

Hi,

I am a CA resident who over contributed to my HSA account last year by about $200. I want to remove the excessive contribution by deadline (with extension). It looks like I have two with two options:

1) Withdraw in cash.

2) Rollover the excessive contributed amount to this year.

My question is:

1) Is option 1 better than option 2?

2) Do I need to file 5329 in either case?

3) For federal tax, I was also suggested to include the excessive contribution into other incomes in 1040. What shall I do with CA tax? Will I be double-taxed on the $200 if I increase my taxable income by $200?

Thanks

[BillM223 · Accepted solution]

I would normally advise option 1 over option 2, but it depends on your specific case. Option 1 means no carryover penalties, and you are over and done with the issue. Options 2 means a 6% carryover over penalty, but if you no longer have the cash in the HSA to do option 1, then option 2 is your only choice.

5239: Option 1 has no need for the 5239, because when you withdraw the excess, there is no carryover penalty. And if you choose option 2, the TurboTax will automatically generate the 5329 - you don't have to.

CA: If you had excess Contributions, TurboTax automatically handles this, because excess contributions are not taxable in CA. So don't do anything.