I work at a large American corporation that somehow screwed up my HSA deductions in 2017. Since it's a large corporation, benefits and payroll are handled by different departments. Somehow, benefits's systems correctly reflected that I was electing to max out my HSA in 2017, and payroll's systems did not reflect that. So no money was deposited into my HSA account for the whole year. I finally discovered this while doing an annual review of finances about a week ago (why I didn't notice earlier is a long story).
Both benefits and payroll have not been particularly helpful; they are staffed in call center setups serving more common scenarios, and I think this has everyone scratching their heads. Payroll pretty much tried to wash their hands of it immediately, and benefits is still trying to see what they can do, but I'm not optimistic that this will be handled well.
My ideal scenario is that I would take some of the money I had contributed to after-tax in 2017 (I maxed out my traditional 401k and also had some extra for after-tax to try the mega-backdoor Roth strategy) and "shift" it over into the HSA, since I would prefer that money would be tax-sheltered. If the deductions had happened correctly, that's essentially what would have happened; with extra being deducted from my paycheck for the HSA, I wouldn't have had that money to make as an after-tax contribution.
It does look like I can contribute money into my 2017 HSA up until tax day in 2018, so that part of the picture should be easy. And I understand that I can make an above-the-line deduction on those dollars, so I will be able to get relief on the 2017 tax burden for that. That feels like a big win.
Now, that deposit comes from seems a bit trickier. My reading of
about401k.com/withdrawal/after-tax is that any money I take out of my after-tax account will be composed of both principal and earnings proportionate to what's my account, and that the earnings will be taxed as well as assessed a 10% early withdrawal penalty. The amount I need to withdraw would be $2700, and proportionately, I estimate that about $300 is earnings. So one answer is that being taxed on $300 plus the 10% penalty is really not so bad (probably about $105 total) and I should just deal with it if that's the price of getting that money in a tax-sheltered account, where it should be.
And the other option would just be to reduce my retirement contributions in 2018 a bit so as to save up the $2700 before tax day, then deposit that without having to worry about the after-tax withdrawal. I suppose that may be preferable given the tax/penalty issue above, plus the hassle of dealing with the withdrawal.
Are there other options? Other thoughts on this situation? In a perfect world, my company would be able to fix this somehow without me having to take on extra tax liability, since this is on them. But I don't know the tax code well enough to know if they have the power to recall some of these activities, or if it's reasonable to expect they'll be able to execute even if it's theoretically possible. I get a different person on the line every time I call, so exploiting a rather obscure tax rule correctly seems like a risk.
All thoughts and perspectives appreciated, thanks.
