HSA excessive contribution? (plan, deductible, take, savings)

[saigafreak]

Our employer is stopping contributions for our HSA, but since it will take at least 2 or 3 paycycles for this to occur, we may have a situation where our yearly contribution exceeds the IRS allowed amount. Besides paying the 6% excise tax I think we have to pay, what other options might we have? Can the financial institution holding the account reverse deposits to keep you at or below the limit? Thanks!

[Ariadne22]

It's pretty easy. Just write a check to yourself for the excess before you file your tax return.

The IRS says this:

Excess contributions. You will have excess contributions if the contributions to your HSA for the year are greater than the limits discussed earlier.

Excess contributions are not deductible.

Excess contributions made by your employer are included in your gross income.

If the excess contribution is not included in box 1 of Form W-2, you must report the excess as “Other income” on your tax return.

Generally, you must pay a 6% excise tax on excess contributions. See Form 5329, Additional Taxes on Qualified Plans (including IRAs) and Other Tax-Favored Accounts, to figure the excise tax. The excise tax applies to each tax year the excess contribution remains in the account.

You may withdraw some or all of the excess contributions and not pay the excise tax on the amount withdrawn if you meet the following conditions.

• You withdraw the excess contributions by the due date, including extensions, of your tax return for the year the contributions were made.
• You withdraw any income earned on the withdrawn contributions and include the earnings in “Other income” on your tax return for the year you withdraw the contributions and earnings

Publication 969 (2013), Health Savings Accounts and Other Tax-Favored Health Plans

About reversing the deposit, call your financial institution. Seems to me writing a check to yourself is the easier solution.

[JRR]

Check with the financial institution holding your account. I have to take out a small over contribution and there is a special form form to complete (not a big deal; just one page). There has to be a calculation done by the institution for the amount of income earned on the amount you are withdrawing.