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03-27-2017 10:14 PM - edited 03-27-2017 10:32 PM
I am in a very similar situation as TaxHelpPlease from Ineligible HSA Contribution (Employer & Employee) post on 3/22/2017. I found out recently that I was never qualified for an HSA (was dual covered with a non-HDHP from my parents) but have an HSA account where both me and my employer contributed for 2016. My employer has made a pre-tax contribution of $1000 while I made an after-tax contribution of $2350. I am planning to submit a "Excessive Contribution Return Form" for my employer's contribution and a "HSA Mistaken Contribution Form" for my after-tax contributions.
However, it gets a bit more complicated in my situation as I have placed the contributed money into HSA's mutual funds and it has been investing for the last quarter of 2016. Since then, I have received dividends from the mutual funds and saw that I have unrealized capital gains from the growth of the fund. In addition I have also gained a few cents interest from the HSA's cash account. I have a few questions that I would like clarified:
1. As I am trying to reverse my 2016 contributions, what do I do with the interests, dividends, and unrealized capital gains I've accrued on my HSA account? Note, I will be eligible for HSA next month and my HSA representative suggests that I can keep my account open. If this is the case, can I leave them alone or "rollover" my fund gains and make it count towards contributions for 2017?
2. Do I need to state anywhere on my taxes that I had reversed my post-tax contributions to my HSA?
3. How should I go about filling out Form 8889 or reporting these things when I am not suppose to have a HSA account?
I have searched online, called my HSA, and spoke IRS representatives on the phone and I was not able to get anything to help me out of this situation. I am at a loss and really have no idea how to file these HSA changes accordingly for taxes (I don't know what will happen if I file incorrectly), I genuinely appreciate the help!
04-21-2017 11:00 PM
Welcome to the H&R Block community.
When you have excess contributions to an HSA the first thing you need to do is withdrawl the excess contributions and pay the 6% penalty. You must to fill out Form 5329, but you can request a waiver of the penalty by attaching a statement explaining that you withdrew the excess contributions before the tax deadline.
Anything left over in the account can stay there or be rolled into a new HSA. An HSA can exist without a high-deductible health plan, you just can't make contributions to it without having the HDHP. An HSA also stays with you if you leave an employer, and you can roll funds from one HSA into another through a direct rollover as many times you like. Note that there is a limit on indirect rollovers.
If you have any other questions I'll be glad to help.
Senior Tax Advisor (Tampa, FL)