Author Topic: New HSA provider - new annual limit?  (Read 959 times)

Mother Fussbudget

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New HSA provider - new annual limit?
« on: November 17, 2016, 01:15:23 PM »
For the first 10 months of the year, my HSA was with HSAbank.  As of 11/1/2016, my company went with a different provider, so I did a cash-out, and bulk transfer of my HSAbank assets to the new provider.  Now that everything has settled, and is invested in VTSAX and other Vanguard funds (yea!) the new provider shows my contributions this year as $189 - ignoring the previous 10 months of contributions to the other HSA provider.   

In essence, the new HSA provider is allowing me to contribute the FULL ANNUAL AMOUNT for 2016 into the NEW HSA account.

I've looked into the effects of this situation, and on IRS form 5329 (Part VI - lines 34-41) there is an out for this situation:  pay 6% tax on the excess contribution to the HSA.  Last year I had an excess contribution to my Roth IRA that was similarly taxed at 6%, so I'm familiar with that. 

The issue is:  it seems to be worthwhile to me to contribute as much to my new HSA account as I can up to the amount of the total HSA balance on Dec. 31, 2015.  I will have to pay 6% tax on that amount, but that's far less than my standard 25% tax rate. 

Assume:  Balance in Dec 2015 was $9,000.  I contributed ~$3,000 into the OLD HSA account for 2016.  In the new account I contribute the full $6,500 for the year - leaving me with ~$3,000 excess contributions for 2016.  That amount is taxed at 6% or $180.  If taxed as regular income, that amount would be taxed at 25% or $750. 

It appears that I'm better off contributing as much as I can toward the HSA to the amount they'll let me, and pay the 6% 'oops' tax.

Am I missing something here?

Dicey

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Re: New HSA provider - new annual limit?
« Reply #1 on: November 17, 2016, 01:18:28 PM »
Um, possible IRS audit?

mskyle

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Re: New HSA provider - new annual limit?
« Reply #2 on: November 17, 2016, 01:24:25 PM »
Haha, it sounds like you just publicly posted your plan to deliberately contribute more than the annually deductible amount to your HSA and then pretend it was an accident.

And I'm pretty sure the 6% "additional tax" is, you know, additional! Like, the excess contribution would be non-deductible (so you would pay the 25%) and then you would get charged an additional 6%.

Don't do this. The IRS will figure it out eventually.

Mother Fussbudget

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Re: New HSA provider - new annual limit?
« Reply #3 on: November 17, 2016, 01:29:11 PM »
AH!  The form says "Additional Tax on Excess Contributions to Health Savings Accounts (HSAs)".

So I think you're exactly right here - I'd pay the 25% + an additional 6%.  Now I'll have to do the math, and work out the max, and only contribute the allowed amount.   Thanks for the additional eyes & minds on this one.