Question

I transferred money from a HSA rollover account into a CD. I received a distribution form from the bank. Was this a "qualified" investment or a taxable distribution?

Forum|Forum|2 years ago
January 29, 2024
2 replies
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I know some HSA's allow investments through brokers (e. g. Schwab). Is what I did considered a taxable distribution, or an allowed investment? If a taxable distribution, can I transfer the money back in to the HSA account prior to April 15th 2024 without a penalty?

TurboTax Online

PatriciaV

Employee

Yes, this was a taxable distribution. If the HSA custodian had transferred the money into an investment, then it would not have been taxable. But in this case, the funds flowed through you, which makes it taxable.

Return the funds to the HSA account as soon as possible. There are penalties that accrue for the entire time the funds are not in your HSA account.

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C

CindyKR

@james1schuster
I think that depends on whether the CD was one set up for HSAs, right. It sounds like James is saying that he had an HSA account and had the company holding it roll it over into another HSA account that was in the form of a CD. If that is the case, I think it is not called a distribution., but a qualifying rollover. If that is the case, then he wouldn't owe taxes on it, right?

PatriciaV

Employee

If the HSA custodian handled the transfer to the CD, they should not have reported the transaction as a distribution. If this was the case, you should ask the custodian for a revised 1099.

@james1schuster

@CindyKR

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O

Opus 17

Employee

There is a big difference between investing within the HSA and withdrawing the money from the HSA to invest it some place else. If this is a withdrawal, you will get a form 1099-SSA. If not used for qualified medical expenses, it is subject to income tax plus a 20% penalty. You can avoid the penalty if the HSA bank will allow you to do a "return of mistaken distribution" but you must do this no later than April 15, 2024. Since the money is locked up in a CD, you will have to find money from some other source to make the return, or pay the penalties.