Revised HSA Contribution Limit

Submitted by joe fotz on Thu, 2018-03-08 10:36

In an article you just posted yesterday you indicated that the IRS revised the method of calculating inflation adjustments for 2018 and the maximum family amount was lowered from $6900 to $6850. I contributed the $6900 back on January 2nd and would like to know how this will be treated? Will my higher contribution be grandfathered and avoid overpayment penalty? Please provide as much detail as possible.



Submitted by joe fotz on Thu, 2018-03-08 10:48

In the event it would be treated as an overcontribution, could I remove the excess $50 (and any earnings) during the year and avoid penalty?

Submitted by Alan - IRA critic on Thu, 2018-03-08 16:36

Yes, you could, but it’s possible that it could be grandfathered by the IRS. However, assuming that doesn’t happen I would not request the excess to be returned because HSA custodians charge fees and it will be easier and less costly to just leave the $50 excess in the account and file Form 5329 any pay 6% excise tax on the excess which is only $3. Then in 2019 you can contribute $50 less than the 2019 contribution limit and that will absorb the excess contribution.

Submitted by David Mertz on Thu, 2018-03-08 19:31

  • I can’t imagine that $6,900 limit could be grandfathered.  Rev. Proc. 2018-18 simply states that the limit for 2018 is $6,850.
  • If the excess is carried over to 2019 and the individual is not eligible to make any HSA contribution for 2019, the 6% penalty for 2018 plus the tax and 20% penalty on the taxable distribution needed to resolve the excess in 2019 after the due date of the 2018 tax return can approach or even exceed the cost of obtaining a return of excess contribution.  Since you have until the due date of your 2018 tax return to obtain the return of excess contribution, you’ll likely know before the deadline whether or not you’ll be able to apply the excess as a contribution for 2019.

Submitted by William Tuttle on Thu, 2018-03-08 21:07

  • Since the IRS in fact issued the 2018 HSA contribution limits nine (9) months ago. People following guidance from IRS Notice 2004-2 Q&A 21, in good faith made an $6,900 HSA family contribution. “Although the annual contribution is determined monthly, the maximum contribution may be made on the first day of the year.” I think a very strong case could be made that it would be “against equity and good conscience” for such taxpayer to be adversely affect.
  • IRS could simply state that they would allow this $50 good faith over contribution to be simply withdrawn and the IRS would consider it qualified. Or they could waive the excise tax, etc…

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