Excess HSA Contribution
Hello-
My apologies in advance if this should not be asked here! Client made an excess HSA contribution (contributions made slowly over time through payroll). The account has actually decreased in value. Due to simplicity can we withdraw the full excess contribution or is he required to reduce the amount of excess by the loss.
Thank you!
Permalink Submitted by William Tuttle on Wed, 2022-03-09 16:41
The simplest approach is to request removal of the excess contribution amount and associated earnings. The HSA custodian will calculate any positive or negative earnings for you.
Note: Most HSA custodians will charge a fee (typically $20 – $25).
It is often more cost effective on an excess contribution < ~$400, to pay the 6% excise tax. Provided you will have that amount of available eligible HSA contribution space in the following year.
Permalink Submitted by Adam King on Sun, 2022-03-13 01:41
I’ve been through this. It was easier to pay the 6% tax and avoid the earnings (or loss) calc, then follow up the next year by under-contributing. The excess carries forward, and is wiped out. Of course the larger the over-contribution, the larger the penalty, but it’s only $60/Thousand so it’s not really that much.
Permalink Submitted by Adam King on Sun, 2022-03-13 01:41
I’ve been through this. It was easier to pay the 6% tax and avoid the earnings (or loss) calc, then follow up the next year by under-contributing. The excess carries forward, and is wiped out. Of course the larger the over-contribution, the larger the penalty, but it’s only $60/Thousand so it’s not really that much.