Rollover of HSA – do we have a problem?
My spouse had his HSA at a credit union. For 2015 his employer started using Fidelity for HSAs. We wanted to move the money at the CU to Fidelity.
Fidelity would do transfers only electronically, which the CU did not support. Fidelity said to send a check and use a deposit form with the “rollover” box checked. Credit union does not supply checks for HSAs, only debit card, so we had them issue a check. The check was made out to Fidelity, FBO spouse. Paperwork with that says “transfer”.
Side issue: Credit union failed to close account and we got $0.52 interest at the end of that month in the credit union HSA. We withdrew that to close the account and will claim it against medical expenses.
5498-SA from Fidelity shows the rollover contribution in box 4.
1099-SA from credit union shows the $0.52 in box 1, and code 1 in box 3.
What’s the best way to handle on our taxes? Should we ignore the rolled/transferred amount and wait for the IRS to notice the discrepancy and explain it at that time? I don’t know if CU would reissue 1099 showing rolled amount as a distribution.
Thank you for your help.
Permalink Submitted by Alan - IRA critic on Fri, 2016-02-19 03:59
He did not take a distribution, he did a transfer to Fidelity and the CU was correct not to report it on the 1099 SA. Fidelity should NOT have issued the 5498 and he should request that Fidelity rescind it. While the IRS will not have a 1099 SA to match up with the 5498 and that will support his position should the IRS inquire into this, it is still best to at least attempt to have FIdelity correct their error. While he could report this a a distribution and rollover, that would use up the one rollover permitted in 12 months and he could regret it if he wanted to do an actual rollover before the 12 months expired. If Fidelity refuses to rescind the 5498 SA and he is reasonably sure that he will not need the rollover for later, he could report the distribution on Form 8889 and not spend any more time on it.
Permalink Submitted by Ginny Trautman on Fri, 2016-02-19 04:31
Thank you, Alan. We will give it a shot with Fidelity. They had told us they don’t take HSA transfers by check, so we followed their instructions to submit it as a rollover.We won’t need to do another rollover, so we will report this as one if Fidelity won’t cooperate. Thank you again.
Permalink Submitted by Alan - IRA critic on Fri, 2016-02-19 16:47
A check made out to FIdelity FBO his HSA is not a distribution and delivering it to FIdelity is therefore not a rollover. This is a trustee to trustee transfer. I suppose if there is no mention of HSA as part of the payee, then Fidelity may be taking the position that the payee was too vague. Not sure what their explanation for the 5498 would be, but the fact that the CU did not issue a 1099 for it indicates that the CU did not consider the check to be a distribution,