HSA but under Medicare A
A client contributed to her HSA in 2020. she realized that was not permissible and halted contributions. the HSA had a value and a 5498 was generated for tax year 2020. she is about to file her taxes, by Oct 15. what is the most appropriate way to correct this oversight, remove her HSA balance, and pay taxes on it, either for her 2020 taxes or moving forward for 2021 tax year.
thank you
Permalink Submitted by Alan - IRA critic on Tue, 2021-10-12 19:03
To avoid a 6% excise tax on the excess contribution, it must be removed along with allocated earnings by 10/15 assuming she is on a timely filed extension. Any earnings will be taxable on her 2021 return. Almost no time left to get this done by 10/15 and avoid the excise tax due with 2020 return, Form 5329.