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Health Savings Account Issue

RJM
  |     |   499 posts since 2011

For the last 5-6 years, I have been buying Health Insurance thru Obamacare. I always get an HSA Plan except this year, I mistakenly bought a non HSA plan by mistake. And I did not notice my mistake until it was too late to change it.

Making matters worse, I added new money to the HSA for 2018 thinking, like usual, I had bought the correct plan.

So, when I realized it, I called both the healthcare.gov people and the insurer. Neither had a clue what I should do.

My credit union, where I have the HSA also didn't know.

So I called a CPA. He did not know either. And said calling the IRS was unlikely to result in a correct answer.

Obviously, the $4450 tax deduction is a big part of why I have the HSA.

My question is, should I just do my taxes next year as if I bought the HSA insurance plan and try to take the deduction like I did in prior years? Will they catch it and reject it?

Or should I try to take out the $4450 because it was a mistake and not even try for the deduction for 2018?

Thanks.

This was 100% my fault. BCBS offers 2 identical plans. One HSA compatible and the other not. The price difference is minimal, I think the HSA one is $50 a year more.

I will be more careful in the future but what can/should I do from here?

My inclination is to leave the $4450 and try to take the deduction when I do my 2018 taxes. But I don't know if that would work or if it would be rejected and cause penalties.

Thanks.

Again this was just an oversight. I picked the wrong plan because they have 2 nearly identical plans, The only difference is one is not HSA compatible.

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2


Answers
bwk1954
  |     |   25 posts since 2011
Page 7 of Pub. 969 on irs.gov tells how to correct excess contributions. Basically you withdraw the contributions plus any interest. Form 8889 and its instructions for line 13 concern the excess contributions and the time frame in which they must be removed to avoid penalties.
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RJM
  |     |   499 posts since 2011
Thanks. This seems to answer my questions.

Excess Contributions You Make
To figure your excess contributions (including those made on your behalf), subtract your deductible contributions (line 13) from your actual contributions (line 2). However, you can withdraw some or all of your excess contributions for 2017 and they will be treated as if they had not been contributed if:
You make the withdrawal by the due date, including extensions, of your 2017 tax return (but see the Note under Excess Employer Contributions, later);
You do not claim a deduction for the amount of the withdrawn contributions; and
You also 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.
----------------
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
aren’t deductible. Excess contributions made by
your employer are included in your gross income. If the
excess contribution isn’t 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 avoid paying 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.
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2
bwk1954
  |     |   25 posts since 2011
In January of the year following the withdrawal of the excess contribution, the HSA custodian will send you a 1099-SA showing a distribution of the excess funds in Box 1. Then the following month of May, the custodian will send a 5498-SA showing the excess contribution. One cancels the other, makes no sense to me, but that is how it is done.
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3
RJM
  |     |   499 posts since 2011
But what I should do now is take out the excess and then do my taxes as usual next year with that form. And I can get that form with my online tax place, OLT.COM.
(Its like TurboTax but a lot less)

The interest too. Which, I guess might be a few dollars worth.
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1
bwk1954
  |     |   25 posts since 2011
I believe you have until tax deadline of 2019 to remove the excess plus interest to avoid a penalty, but personally I would do it ASAP.
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2
Ally6770
  |     |   4,294 posts since 2010
I would call BCBS and tell them what happened. Maybe they have a solution. Maybe your selection can be reversed. Ask to speak with management if the person has no immediate answer for you.
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5
RJM
  |     |   499 posts since 2011
Already did that. They are trained not to answer tax questions.
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3
MidAtlantic
  |     |   142 posts since 2012
Did you ask if you could switch policy to the one you intended? That is not a tax question.
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1
RJM
  |     |   499 posts since 2011
no. cant switch, I know that.
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2
Ally6770
  |     |   4,294 posts since 2010
Ask!!!! Say a mistake has been made. Show them that you have had the other one for years and misunderstood the website. There are remedies for every mistake.
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3
RJM
  |     |   499 posts since 2011
Ask whom? I already asked 3 places and got nowhere before I came here.

bwk gave me the correct answer.
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2
Ally6770
  |     |   4,294 posts since 2010
You said you asked them a tax question. Tell them you signed up for the wrong healthcare plan. You said you have had the right one for a while in the past and they can look it up. If the person is of no help ask for a supervisor.
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2
RJM
  |     |   499 posts since 2011
SMH.

You cant change plans in mid year. What I did in the past and a supervisor can't change that.
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2
Ally6770
  |     |   4,294 posts since 2010
Did you tell them it was a mistake. that you misunderstood what you purchased. They would know what you had in the past. There are always solutions for mistakes if you have good proof. This is mid-year? I thought the policy started in Jan.
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3
david3
  |     |   9 posts since 2012
Ally, I know your trying to be helpful, however there are very specific rules/irs regs/ laws regarding open enrollment for health insurance. Once the enrollment period is over, doesn't matter if you chose the wrong plan. You are not allowed to make changes period. The only exception is a documented life changing event, such as marriage. Exceptions can't be made.
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