Can I make HSA constribution for 2020 without a HDHP-HSA for 2021?

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Topic Author
dand76
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Joined: Fri Apr 26, 2013 3:12 pm

Can I make HSA constribution for 2020 without a HDHP-HSA for 2021?

Post by dand76 »

Hi all,
Looking for answers from knowledgeable people on HSA contributions.

My wife and I had a high deductible health plan (HDHP) with HSA for all 12 months of 2020 which we purchace from the Washington state ACA website. We're retired and our income comes from a small pension and rollover IRA withdrawls. I made a $4k Roth contribution during 2020. I made no HSA contributions during 2020.

For 2021, we have a HDHP which is NOT paired with an HSA. Doing an intial run at doing 2020 taxes I discovered I screwed up and withdrew too much out of the IRA and it has put me over the ACA cliff. I need to lower my income for 2020 by $4400 so I don't have to pay back the ACA subsidies and to get the wife to like me again. Can I contribute $5000 into my existing HSA account (Fidelity) now (before April 15, 2021) to lower my taxable income and save my hide?

Thanks,
Dan
Soon2BXProgrammer
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Re: Can I make HSA constribution for 2020 without a HDHP for 2021?

Post by Soon2BXProgrammer »

If your 2020 health plan actually qualifies as a "HDHP" for purposes of making an HSA contribution, then yes, you can make "2020" contributions to an HSA and deduct that from your 2020 income.

Be careful about if your 2020 plan was actually "HSA" qualifying.

----

How did you make a $4k Roth "CONTRIBUTION"? if you have no earned income? What am I missing?
mkc
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Re: Can I make HSA constribution for 2020 without a HDHP-HSA for 2021?

Post by mkc »

dand76 wrote: Wed Apr 07, 2021 10:18 am Can I contribute $5000 into my existing HSA account (Fidelity) now (before April 15, 2021) to lower my taxable income and save my hide?
If you do so, be sure to indicate it's for 2020, not 2021.
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MP123
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Re: Can I make HSA constribution for 2020 without a HDHP-HSA for 2021?

Post by MP123 »

One of the provisions in the recently passed American Rescue Plan Act was the temporary elimination of ACA premium tax credit clawbacks for those that underestimated their income for 2020. So you may not have an issue in the first place.

I'm not sure that this has been implemented in all tax software yet though. How are you preparing your return? It may be worth filing an extension and waiting for further information.

But, you can still contribute to the HSA for 2020 in 2021 even if you don't have qualifying coverage in 2021, if need be.

Agree with the question ^^ about the Roth contribution.
Topic Author
dand76
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Re: Can I make HSA constribution for 2020 without a HDHP-HSA for 2021?

Post by dand76 »

Soon2BXProgrammer wrote: Wed Apr 07, 2021 10:22 am
How did you make a $4k Roth "CONTRIBUTION"? if you have no earned income? What am I missing?
Well now I'm really emabarrassed. Obviously retirement during a pandemic has turned the brain to mush. Pretty sure I knew this during my working years and for some reason resorted back to that mentality without thinking about the contribution rules during retirement. Anyone know a good divorce lawyer :oops: (just kidding).

So, now I also need to undue the Roth contribution. A quick google indicates IRS form 5329 will need to be used. Is this the correct/only path to take?
Soon2BXProgrammer
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Re: Can I make HSA constribution for 2020 without a HDHP-HSA for 2021?

Post by Soon2BXProgrammer »

dand76 wrote: Wed Apr 07, 2021 11:12 am
Soon2BXProgrammer wrote: Wed Apr 07, 2021 10:22 am
How did you make a $4k Roth "CONTRIBUTION"? if you have no earned income? What am I missing?
Well now I'm really emabarrassed. Obviously retirement during a pandemic has turned the brain to mush. Pretty sure I knew this during my working years and for some reason resorted back to that mentality without thinking about the contribution rules during retirement. Anyone know a good divorce lawyer :oops: (just kidding).

So, now I also need to undue the Roth contribution. A quick google indicates IRS form 5329 will need to be used. Is this the correct/only path to take?
I haven't done it, but i'd call your custodian and tell them you made a mistake and ask them how to fix.
Topic Author
dand76
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Re: Can I make HSA constribution for 2020 without a HDHP-HSA for 2021?

Post by dand76 »

Don't know that it makes any difference but Fidelity is calling it a 'conversion' not 'contribution' as I transferred the $4k directly from the rollover IRA into a Roth IRA.

To answer a previous question - I'm using Turbo Tax but may need to hire additional support this year.
Soon2BXProgrammer
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Re: Can I make HSA constribution for 2020 without a HDHP-HSA for 2021?

Post by Soon2BXProgrammer »

dand76 wrote: Wed Apr 07, 2021 11:34 am Don't know that it makes any difference but Fidelity is calling it a 'conversion' not 'contribution' as I transferred the $4k directly from the rollover IRA into a Roth IRA.
Ahh.. So if its a conversion, then you would have received a 1099-R for the 4k? what was the distribution code?

If you did a "roth conversion" then its taxable, but allowed. (assuming you aren't of the age where you would have been required to do RMD's then there are additional rules)
Topic Author
dand76
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Re: Can I make HSA constribution for 2020 without a HDHP-HSA for 2021?

Post by dand76 »

The $4k Roth 'conversion' is included on the same 1099-R along with my normal, automatic, monthly IRA distributions with Distribution Code = 7. Not old enough for RMDs. Thx
Soon2BXProgrammer
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Re: Can I make HSA constribution for 2020 without a HDHP-HSA for 2021?

Post by Soon2BXProgrammer »

dand76 wrote: Wed Apr 07, 2021 12:15 pm The $4k Roth 'conversion' is included on the same 1099-R along with my normal, automatic, monthly IRA distributions with Distribution Code = 7. Not old enough for RMDs. Thx
if your greater then 59.5 then this is right based on my understanding.. and if fidelity says it was a "roth conversion" then its a "roth conversion" ... eventually there will be a 5498 from your Roth IRA, and hopefully it will have 4k in the conversion column.

I think your good if fidelity says it was coded as a conversion.. then its a conversion.
Topic Author
dand76
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Re: Can I make HSA constribution for 2020 without a HDHP-HSA for 2021?

Post by dand76 »

I was just going to add that the word 'coversion' comes from the Form 5498 that I have. My age is 63.

Form 5498:
Line 3: Roth IRA conversion amount....$4000.00
Line 5: Fair market value of account...$5190.08
Line 7. IRA Type............................Roth IRA

Am I understanding that I don't need to reverse this $4000 transfer into a Roth?
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MP123
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Re: Can I make HSA constribution for 2020 without a HDHP-HSA for 2021?

Post by MP123 »

dand76 wrote: Wed Apr 07, 2021 12:36 pm I was just going to add that the word 'coversion' comes from the Form 5498 that I have. My age is 63.

Form 5498:
Line 3: Roth IRA conversion amount....$4000.00
Line 5: Fair market value of account...$5190.08
Line 7. IRA Type............................Roth IRA

Am I understanding that I don't need to reverse this $4000 transfer into a Roth?
Right. There's no issue with a conversion, we just thought you had made a contribution which requires earned income.
TropikThunder
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Re: Can I make HSA constribution for 2020 without a HDHP-HSA for 2021?

Post by TropikThunder »

dand76 wrote: Wed Apr 07, 2021 12:36 pm I was just going to add that the word 'coversion' comes from the Form 5498 that I have. My age is 63.

Form 5498:
Line 3: Roth IRA conversion amount....$4000.00
Line 5: Fair market value of account...$5190.08
Line 7. IRA Type............................Roth IRA

Am I understanding that I don't need to reverse this $4000 transfer into a Roth?
Correct. The income requirements are for contributions. The money you converted was contributed in a previous year.
Topic Author
dand76
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Re: Can I make HSA constribution for 2020 without a HDHP-HSA for 2021?

Post by dand76 »

Whew! Thanks so much for the information. I was beating myself up pretty good over the mistake of going over the ACA cliff but then to have a potential 2nd screw up would be totally out of character for me. This website is awesome. Thanks again!!!
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gobel
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Re: Can I make HSA constribution for 2020 without a HDHP-HSA for 2021?

Post by gobel »

dand76 wrote: Wed Apr 07, 2021 12:58 pm Whew! Thanks so much for the information. I was beating myself up pretty good over the mistake of going over the ACA cliff but then to have a potential 2nd screw up would be totally out of character for me. This website is awesome. Thanks again!!!
Assuming the conversion was from pre-tax IRA funds, then the $4000 is added to your AGI. If that wasn't included in your initial calculations, then you are actually over the cliff by $8400 instead of $4400. You could probably do the family max + catchup into 2 HSAs to still offset this though.

otoh, clawbacks were supposed to be cancelled for 2020. The gray area is whether people who went over the cliff are also immune, or only people who officially qualify for subsidies based on their 2020 MAGI. It might be too risky to wait until the IRS figures it out though - you must make your 2020 contribution to your HSA by May 17, 2021.
Topic Author
dand76
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Re: Can I make HSA constribution for 2020 without a HDHP-HSA for 2021?

Post by dand76 »

gobel wrote: Wed Apr 07, 2021 3:46 pm
Assuming the conversion was from pre-tax IRA funds, then the $4000 is added to your AGI. If that wasn't included in your initial calculations, then you are actually over the cliff by $8400 instead of $4400. You could probably do the family max + catchup into 2 HSAs to still offset this though.

otoh, clawbacks were supposed to be cancelled for 2020. The gray area is whether people who went over the cliff are also immune, or only people who officially qualify for subsidies based on their 2020 MAGI. It might be too risky to wait until the IRS figures it out though - you must make your 2020 contribution to your HSA by May 17, 2021.
Thanks for the heads up. The $4K was already in my calculation so I'm good at $4400. I'm going to be holding off on filing taxes until the deadline to see if the IRS does anything with the ACA cap for 2020.

Also, TurboTax says we qualify for relief from IRA distributions because of things we had to do for COVID so have to look into the tax advantages with that. Something about dispersing some of the IRA withdrawl over 3 years.
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gobel
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Re: Can I make HSA constribution for 2020 without a HDHP-HSA for 2021?

Post by gobel »

gobel wrote: Wed Apr 07, 2021 3:46 pm The gray area is whether people who went over the cliff are also immune, or only people who officially qualify for subsidies based on their 2020 MAGI.
Your problem may be moot now. I just updated my TT desktop version and they have eliminated the obamacare clawback, and they interpreted it as no clawback for both under and over the cliff. [edited: I guess to be extra safe you could still do the HSA in case the IRS disagrees? - I think the TT guarantee covers penalties and interest, but not the actual tax difference itself]

What's more interesting is that they didn't do anything about the CA make-up subsidies. Ie. both Fed and CA are now showing refunds! (I mentioned in one of the other threads that CA partially offsets the Fed clawbacks, but now there's no Fed clawback while CA is still paying the make-up. I wonder if they'll realize and fix that, or if it would take the State legislature to rewrite the law first.)
Topic Author
dand76
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Re: Can I make HSA constribution for 2020 without a HDHP-HSA for 2021?

Post by dand76 »

gobel wrote: Thu Apr 08, 2021 4:00 pm
gobel wrote: Wed Apr 07, 2021 3:46 pm The gray area is whether people who went over the cliff are also immune, or only people who officially qualify for subsidies based on their 2020 MAGI.
Your problem may be moot now. I just updated my TT desktop version and they have eliminated the obamacare clawback, and they interpreted it as no clawback for both under and over the cliff. [edited: I guess to be extra safe you could still do the HSA in case the IRS disagrees? - I think the TT guarantee covers penalties and interest, but not the actual tax difference itself]
We're seeing the same thing now in TurboTax. Re-running our info thru TT with our income over the ACA cliff it is now showing we wouldn't be paying back the subsidies. According to Fidelity, it looks like they've extended the deadline for HSA contributions to May 17 so we'll be waiting to file taxes and keep an eye out for verification from the Feds that the clawback for 2020 is really gone.
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