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Excess HSA Contributions
Old 02-25-2012, 08:30 AM   #1
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Excess HSA Contributions

I made the maximum family HDHP/HSA contribution last year. I retired at the end of June. Never dawned on me, but TurboTax says you have an excess contribution that you must take as income - their worksheet shows the maximum for any year is prorated by the number or months I was under an HDHP (6 months). OK.

So I call my HSA admin (HealthEquity), explain the above, and tell them I need a check taking half of the contribution back as ordinary income. They have a "Distribution of Excess HSA Contribution Form" on their website, so I think "that's me!" But the HealthEquity rep (after consulting another expert) tells me, 'no, if you were eligible for all of 2010 (I was), you can still contribute the maximum for 2011.' They go on to tell me retiring mid year doesn't matter unless I became eligible for Medicare (I didn't).



I read up online sources, IRS and other, they seem to agree with TurboTax, but the IRS regs especially are mind numbing reading and most of the examples are folks 65 who's partial year HSA eligibility is due to Medicare eligibility (not my situation). I have already read all the IRS 1099-SA, Form 8889 & HSA instructions & forms.

I called the IRS help line, but after 30 minutes of "the next available agent.....zzzzzzzzzzz", I hung up.

Not something that ever even dawned on me before. Anyone know the right answer by any chance?
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Old 02-25-2012, 08:42 AM   #2
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Retirement makes no different. If you had a eligible coverage the entire year you can take the full year deduction. If your policy changed when you left work and your new policy is not HSA eligible than you have an excess.
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Old 02-25-2012, 08:43 AM   #3
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I don't have a source I can link to but my understanding aligns with TurboTax - your annual contribution limits are pro-rated to the time you were covered by a HSA eligible plan.

Maybe you should call the HealthEquity folks back and ask them to provide you with a reference to the specific section of the IRS regulations allowing a full contribution.
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Old 02-25-2012, 08:44 AM   #4
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Midpack, did you have HDHP coverage for 6 months or the full year?
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Old 02-25-2012, 08:48 AM   #5
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Quote:
Originally Posted by pb4uski View Post
Midpack, did you have HDHP coverage for 6 months or the full year?
6 months HDHP/HSA in 2011 (though I contributed the full $6150 HSA amount in Jan) because I retired end of June, full year eligibility in all prior years (if it matters).
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Target AA: 60% equity funds / 35% bond funds / 5% cash
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Old 02-25-2012, 08:51 AM   #6
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Quote:
Originally Posted by Midpack View Post
6 months HDHP/HSA in 2011 (though I contributed the full $6150 HSA amount in Jan) because I retired end of June, full year eligibility in all prior years (if it matters).
If your new coverage is not HSA eligible you have an excess contribution. Sorry.
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Old 02-25-2012, 08:59 AM   #7
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IRS pub 969, page 5, "Limit on Contributions" covers this question and provides a couple of examples. Looks like there is a worksheet you can use to do the calculation.
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Old 02-25-2012, 09:03 AM   #8
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Thanks for the quick responses gentlemen, as I feared expected. Surprising that the HSA adminstrator would give me the wrong answer

So I have $2575 in unexpected taxable income, we'll live.

What threw me in part was the last month rule. Not that it applied in my case, but that an individual is eligible for the full year max contribution if they are only in an HDHP for December of the tax year (one month), but without December, it's prorated. Wishful thinking on my part...
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Target AA: 60% equity funds / 35% bond funds / 5% cash
Target WR: Approx 2.5% Approx 20% SI (secure income, SS only)
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Old 02-25-2012, 09:12 AM   #9
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While I wasn't aware of that rule, I made sure to buy a HSA qualifying HDHP after I RE'd because I want to continue making contributions and get the benefit of tax deferral. I'm planning to build it up and then use it for medical expenses later in life.
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Old 02-25-2012, 09:18 AM   #10
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The last month rule is especially confusing because it gives an advantage to some over others. Not fair or sensible, but because of it I wait to year end to make our contribution.
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