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Tuesday, March 22, 2022

Email Consulting Guidance – HSA Transfer Mistakes or Difficulties

Email Consulting Guidance – HSA Transfer Mistakes or Difficulties

Posted by James M. Carlson
February 2022

Q-1. I have two HSA customers that we opened their HSA accounts in July of 2021 with a HSA transfer check from their prior HSA custodian BASC. This was coded as a transfer and they have had access to this money since July 2021. Both customers said that this now zeroed out their HSA accounts with BASC.

On Tuesday, I received two checks from BASC. The checks are made out to First State Bank and then the customer’s name. The transfer paperwork that was signed at the end of June 2021 to transfer this money was included with both checks. Clearly they have made an error and paid these accounts out twice. I have called BASC twice and have gotten nowhere as they say they cannot release any information to me. The one customer has, also, called them twice and has been told both times that we (First State Bank) need to deposit these checks in their HSA accounts and code them as a transfer or they will be taxed. BASC indicated to her that they made an error and this transfer never occurred in July 2021. Obviously that is not true as we have had the money since July 2021.

What would you suggest I do? Should I deposit these checks, code them as a transfer and wait until they discover their error? Should I send the checks back? I do have a copy of the checks they sent in July that opened these accounts as proof that we did receive this money. I’m just not quite sure how to proceed in the best way for both of them.

A-1. A transfer requires the consent of both HSA custodians. There is no requirement that FSB endorse the checks.

Was a transfer form furnished - twice, once or not all?

You could return them and explain why in writing. BASC has no right to adopt the position that if FSB fails to sign the checks that the individuals will be treated as having received a taxable distribution.

What do your customers want done?

If the customers believe they are entitled to these funds I believe you could process these transactions as a transfer. FSB could adopt the approach - the customer must assume full responsibility for these transfers and if he or she later comes to FSB and informs you that these contributions must be treated as an excess contribution and that then they agree to pay a ??? fee ($50.00) for all the work related to correcting the excess.

The more conservative approach is - return the checks unsigned.

Posted by James M. Carlson at 13:48.59
Edited on: Tuesday, March 22, 2022 13:57.25
Categories: Health Savings Accounts