On Thu, 22 Feb 2024 22:21:29 EST, "Stuart O. Bronstein"
<
spamtrap@lexregia.com> wrote:
OP withdrew money from his HSA to reimburse himself for proper medical >expenses. He didn't realize he would be reimbursed for that otherwise, but >he was.
Now he needs to know what to do about the HSA withdrawal.
I guess one option is to contribute it back if he hasn't maxed his >contributions. But are there other options? Can he roll it back over or >repay it within 60 days?
He might be able to put it back in the HSA as a rollover if
he puts it back within 60 days after the distribution was
made. The IRS instructions for Form 8889 say the following
(on page 4).
"A rollover is a tax-free distribution (withdrawal) of
assets from one HSA or Archer MSA that is reinvested in
another HSA of the same account beneficiary. Generally, you
must complete the rollover within 60 days after you received
the distribution. An HSA can only receive one rollover
contribution during a 1-year period."
I would think that he could roll it back into the same HSA,
but the instructions don't say that.
He could possibly also put it back in the HSA as a mistaken
distribution. The Form 8889 instructions (page 9) reference
IRS Notice 2004-50 Q&A 37 and Q&A 76 regarding returning
mistaken distributions. Here's a link to download Notice
2004-50.
http://www.irs.gov/pub/irs-drop/n-04-50.pdf
However, Notice 2004-50 also says that the HSA trustee or
custodian is not required to accept rollover contributions
or return of mistaken distributions (Q&A 76 and Q&A 78). So
he would have to ask the trustee or custodian if they would
accept it.
The following is the complete text of Q&A 37 and Q&A 76 from
Notice 2004-50.
Q-37. An account beneficiary receives an HSA distribution as
the result of a mistake of fact due to reasonable cause
(e.g., the account beneficiary reasonably, but mistakenly,
believed that an expense was a qualified medical expense and
was reimbursed for that expense from the HSA). The account
beneficiary then repays the mistaken distribution to the
HSA. Is the mistaken distribution included in gross income
under section 223(f)(2) and subject to the 10 percent
additional tax under section 223(f)(4) or subject to the
excise tax on excess contributions under section 4973(a)(5)?
A-37. If there is clear and convincing evidence that amounts
were distributed from an HSA because of a mistake of fact
due to reasonable cause, the account beneficiary may repay
the mistaken distribution no later than April 15 following
the first year the account beneficiary knew or should have
known the distribution was a mistake. Under these
circumstances, the distribution is not included in gross
income under section 223(f)(2), or subject to the 10 percent
additional tax under section 223(f)(4), and the repayment is
not subject to the excise tax on excess contributions under
section 4973(a)(5). But see Q&A 76 on the trustee's or
custodian's obligation to accept a return of mistaken
distributions.
Q-76. Must the trustee or custodian allow account
beneficiaries to return mistaken distributions to the HSA?
A-76. No, this is optional. If the HSA trust or custodial
agreement allows the return of mistaken distributions as
described in Q&A 37, the trustee or custodian may rely on
the account beneficiary's representation that the
distribution was, in fact, a mistake.
Bob Sandler
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