HSA mistaken distribution issue (2014 taxes)

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triglav1
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Joined: Mon Apr 01, 2013 1:48 pm

HSA mistaken distribution issue (2014 taxes)

Post by triglav1 » Tue Mar 24, 2015 3:49 pm

Hi everyone -

I have an interesting predicament that came up as I was doing my 2014 taxes. I have an employer HSA account with Wells Fargo where my HSA contributions are deposited each paycheck. I have a separate HSA set up with Elements Financial (formerly ELFCU) so I can invest in Vanguard funds through TD Ameritrade.

When I asked Wells Fargo in early 2014 how to transfer the money directly to ELFCU so it is coded as a HSA trustee-to-trustee transfer (can do unlimited of these), they gave me their distribution request form. I filled it out with my ELFCU HSA account information, and they transferred the money directly to that account. I did that twice in 2014. Looking back now, I realize they sent me the wrong form.

Wells Fargo submitted a 1099-SA that reports $4,640 in distributions in 2014, since I did two transfers of $3,500 and $1,140. When I talked to WF, they said that I would need to submit a mistaken distribution form, transfer $4,640 back to WF, they'd submit an updated 1099-SA, and transfer the money back to Elements using the correct process. I'd also need to cashout of my VTI ETF to get it from TD Ameritrade back to Elements (and then later back again), ensuring that they code everything correctly on both ends - huge pain.

Is the above process the best I can do? What are the implications if I don't do this -- I submit my taxes without reporting a distribution (since it was a direct HSA to HSA transfer). I could get audited since WF reported a distribution, and I can back up that I transferred it directly from HSA to HSA.

Thanks!

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Hub
Posts: 394
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Re: HSA mistaken distribution issue (2014 taxes)

Post by Hub » Mon Feb 06, 2017 11:21 am

I just received a 1099-SA from Payflex Systems and I appear to have the exact same problem in that they're reporting it as a regular HSA distribution. I initiated a trustee to trustee transfer from Payflex to Elements for $9k that they are referring to. Please tell me I don't have to do what the OP was told he had to do by Wells Fargo to straighten it out.
Last edited by Hub on Mon Feb 06, 2017 11:50 am, edited 1 time in total.

pshonore
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Re: HSA mistaken distribution issue (2014 taxes)

Post by pshonore » Mon Feb 06, 2017 11:43 am

Hub wrote:I just received a 1099-SA from Payflex Systems and I appear to have the exact same problem in that they're reporting it as a regular HSA distribution. I initiated a trustee to trustee transfer from Payflex to Elements. Please tell me I don't have to do what the OP was told he had to do by Wells Fargo to straighten it out.
You'll definitely get a CP2000 letter if you do not include the 1099SA in your return. You can respond to the CP 2000 letter and tell them what happened. What they will say is anybody's guess. If it were me, I would do what WF suggested (assuming Paychex allows it).

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Hub
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Re: HSA mistaken distribution issue (2014 taxes)

Post by Hub » Mon Feb 06, 2017 12:04 pm

Payflex is saying that when the 5498-SA form comes out it will show that distribution as a contribution to the other plan. But that form doesn't come out until May. Odd. Feel like I'm missing something here. Other oddity is that I had the aforementioned $9k transfer and then also a final account closing transfer when I changed employers and they didn't 1099 me on the 2nd one.

triglav1
Posts: 18
Joined: Mon Apr 01, 2013 1:48 pm

Re: HSA mistaken distribution issue (2014 taxes)

Post by triglav1 » Mon Feb 06, 2017 2:48 pm

For what it's worth, I ended up submitting my taxes without filing the mistaken distribution form. I put all of the documentation and a writeup of the situation in my 2014 tax folder, so if I get any questions, I'll submit the paperwork. If it is just the single distribution for the (rolling time period) year, you can count it as a rollover without penalty.

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Hub
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Re: HSA mistaken distribution issue (2014 taxes)

Post by Hub » Mon Feb 06, 2017 2:55 pm

That's good to know. Thanks for the follow up.
Payflex is now agreeing with me that the 1099 was sent by error somewhere along the line since it was a trustee to trustee direct transfer. I'm trying to get a corrected one sent, but if that doesn't work out then I'll lean toward doing what you ended up doing and just be prepared to explain later.

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