Excess HSA contribution for 2012? Can it be fixed?

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Excess HSA contribution for 2012? Can it be fixed?

Postby Saving$ » Sun Jan 20, 2013 11:41 pm

I started out 2012 covered by my employers High Deductible Health Plan. On November 1, the plan changed to a non HSA eligible plan.

I did not use my employers HSA account service because they had a $5.95/month fee. Instead, I made after tax contributions on my own to a low fee HSA account for January & February. Near the end of February I discovered my employer's accounting person was willing to make a pretax contribution to my HSA account but she wanted to limit the number of transactions. So in March 2012, I had her deposit 10 months worth of pretax HSA contributions, figuring that (added to my January & February contributions) would take care of the rest of 2012.

On November 1, my employer's health plan changed to a non HSA eligible plan. By that time I had forgotten about the 12 months of already made contributions.

After reading the IRS instructions and a few websites, I'm looking for confirmation and/or info on the following:
1. Since I was not covered by an HSA on December 1, 2012, I am not eligible for the max 2012 contribution; instead, as I had HDHP coverage for 10 of the 12 months of 2012, I'm eligible for 10/12 of the max.
2. Since I over contributed, I do an "Excess contribution withdrawal" as long as I complete it before 4/15/13 (tax reporting deadline). The HSA account administrator withdraws both the excess contribution and the interest earned on that.
3. I hope this is not a last in, last out situation. It would be perfect if I could just reverse the two months of after tax contributions I made in January & February 2012. Once I've completed the "Excess contribution withdrawal," even though that transaction will happen in 2013, it is like the over contribution (which is equal to my after tax January and February contribution) never happened. What I don't understand is what I report on form 5498-SA. Can I report only my employer pretax contributions in the top box, and report $0 on line 2 (as the net of my own, now reversed, after tax contribution will be $0 after the "excess contribution withdrawal."
4. Will I have any penalties on this mess?
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Re: Excess HSA contribution for 2012? Can it be fixed?

Postby Alan S. » Mon Jan 21, 2013 5:34 pm

It' sort of an odd fact pattern you have here.

Wait until you have your W-2 to confirm that the employer contributions for 10 months were not included in your Box 1 income. If so, just request a distribution of your own contributions with allocated earnings ASAP. When you fill out Form 8889 you will only report the 10 months of contributions reflected on your W-2, and later in the Form, you subtract that out leaving no deduction. You got the 10 months of employer contributions pre tax since they are not included on your W-2, therefore you cannot claim additional deductions, and you will be withdrawing the 2 months of contributions that you made. The only income you will have to show on your 1040 (other income line) will be the earnings the HSA custodian calculates.

1) I assume you were not covered by any spousal HDHP in Nov and Dec. I agree with your 10/12 of the annual contribution limit, and that leaves two months of excess contributions.
2) You actually have till 10/15 extended due date, but this is something you want to take care of ASAP after review of your W-2.
3) The custodian should calculate the excess amounts to be the last contributions made, ie your final two months of employer contributions (combines YOUR and ERs contributions). That's good for you since the earnings will likely be less for the shorter period. You will get two months back plus/minus earnings. You report on Form 8889 for your 2012 return, but you will not get the 1099SA showing your corrective distribution till Jan, 2014, so you need to get the earnings amount from the statement issued by the HSA custodian after refunding your excess contribution.
4) There is no penalty on the taxable earnings that you have to report as "other income" on Form 1040. This is different from an excess IRA contribution.

This will not be costly, mostly just a hassle to report it and order the corrective distribution.
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Re: Excess HSA contribution for 2012? Can it be fixed?

Postby Rainier » Mon Jan 21, 2013 6:03 pm

Not all monthly fees are evil, in fact, this one could have saved you $.

By using the employer HSA you could have made payroll deductions which would have saved you 5.65% in payroll taxes last year. Based on $3,000 in contributions that is way more than $6 a month.
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Re: Excess HSA contribution for 2012? Can it be fixed?

Postby livesoft » Mon Jan 21, 2013 6:04 pm

Your HSA administrator will probably charge a $50 fee for doing the paperwork for getting the excess contrib out.
It's all about short-term opportunistic rebalancing due to a short-term change in one's asset allocation, uh, I mean opportunistic rebalancing, uh I mean rebalancing, uh I mean market timing.
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Re: Excess HSA contribution for 2012? Can it be fixed?

Postby Rainier » Mon Jan 21, 2013 6:05 pm

livesoft wrote:Your HSA administrator will probably charge a $50 fee for doing the paperwork for getting the excess contrib out.


Not Saving$ here.
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Re: Excess HSA contribution for 2012? Can it be fixed?

Postby Saving$ » Sat Jan 26, 2013 9:27 pm

Rainier wrote:Not all monthly fees are evil, in fact, this one could have saved you $.

By using the employer HSA you could have made payroll deductions which would have saved you 5.65% in payroll taxes last year. Based on $3,000 in contributions that is way more than $6 a month.


Not sure about your math here. Payroll taxes saved by contributing to employers HSA would only be the medicare portion. 1.45% of $3100 is $44.95; Employers cost of HSA is $72/year in fees. Right there, I'm $27+ ahead. And employers account pays 0.15% interest. Even assuming I put the entire $3100 in on the first of the year, that would be $4.65 interest the entire year. The account I'm in pays 1.5% so that is another $40+. And if/when I leave this employer, I won't be hit with an outrageous $75 account closing fee like I was with the last employer I left. I'd even pay a slight premium to be able to use my own HSA instead of an employers, but in my case, it is saving me over $60/year IF I had to pay the Medicare premium. For 10 months of contributions I did not even have to do that.

Rainier wrote:
livesoft wrote:Your HSA administrator will probably charge a $50 fee for doing the paperwork for getting the excess contrib out.


Not Saving$ here.


Checked with them today. No cost to transfer out the excess contributions. Just fax in a form.
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