I signed up for Medicare in 2018 while still employed. At the time I was unaware I was no longer eligible to make HSA contributions . My employer continued to make contributions & I later complained that they should have stopped and/or provided more information during Dec 2017 when elections were being made for 2018. My complaint was denied; employer stated (probably correctly) that I should not have relied solely on info provided during election period and the complaint took quite a while to be resolved. Bottom line: I did not withdraw the excess contribution by what I think I now understand as the latest possible date, Oct 2019. I started to pay an excise tax of 6% each year, and I'm now wondering if there is any way to "cure" this error. Every article I can find speaks of withdrawing excess contributions for the *prior* year (and perhaps earnings). None make it clear if it is possible to ever stop paying the excise until the HSA is depleted. Please clarify: am I really stuck now?
"Is that accurate? "- yes
"I am 70, so it'd be great if I could avoid that extra 20%. " yes
"if I withdraw those funds now, I assume a) I'll still have excise for 2023 &" - yes, but do it this week! (before April 15th)
"b) the withdrawal would be reportable on my 2024 return, not 2023. Right?" - yes
No, you are not stuck now.
You can cure a long-term excess (my term for excess not withdrawn by the due date, which would be short-term) at any time after the original year by taking a distribution and then entering it in the 1099-SA as not for medical expenses. TurboTax will see this, and if the non-qualified medical expenses are greater than or equal to the long-term excess, then the long-term excess will be wiped out (on form 5329). Of course, the long-term excess will be added to your income as well as a 20% penalty, but that will be the last you will see of that carryover and that 6%.
That's good news, but I've now seen a site where it says "If you are 65 or older at the time of withdrawal, then you are free to withdraw money from your HSA for any purpose. You may have to pay the applicable income tax but there will be no additional tax penalty."
Is that accurate? I am 70, so it'd be great if I could avoid that extra 20%. My remaining questions are: if I withdraw those funds now, I assume a) I'll still have excise for 2023 & b) the withdrawal would be reportable on my 2024 return, not 2023. Right?
"Is that accurate? "- yes
"I am 70, so it'd be great if I could avoid that extra 20%. " yes
"if I withdraw those funds now, I assume a) I'll still have excise for 2023 &" - yes, but do it this week! (before April 15th)
"b) the withdrawal would be reportable on my 2024 return, not 2023. Right?" - yes
When you say "entering it in the 1099-SA as not for medical expenses" what does that mean?
I've only ever received a 1099-SA. When and where would I enter the new distribution?
They all get entered in the same place >> Where do I enter form 1099-SA? You are asked follow-up questions about your distributions. One of those questions is Did you use this money to pay for qualified medical expenses?. @Taramaraffi