Stupid HSA question

[NECPA in NEBRASKA]

I'm sure that I know the answer to this, but I am stretching for help for my annoying client. He has been driving me crazy for weeks about establishing an HSA for medical bills that he had "coming up". I researched it for him and he finally established one last week with $5,000. Yesterday he called me and explained that he had already incurred the medical expenses in July, he just didn't have any bills yet. I almost climbed through the telephone. Now of course, he wants to take the money back out to pay the bills that will be coming. I told him that he would be penalized. He will have plenty of other medical bills, so the HSA is not a bad thing, he needs the money that he established it with for these bills. I don't see any way out of the penalty, but if anyone else knows s way out for him, please let me know. Thanks! The last few weeks I have done nothing but put out my clients' self made fires. I took a three day vacation, but with my phone, they can always find me. TIA

[Gail in Virginia]

When did he actually get the high-deductible health insurance policy? If he had that in July, I would think that funding the HSA in October would be okay and he could pay those medical bills with the HSA funds. Or did he just now change insurance to a high-deductible policy that allows HSA contributions. If so, he might have over-contributed for this year anyway since the limit will be prorated for the number of months he had the high-deductible policy. At least, that is my understanding but I am not an expert on these policies.

[JohnH]

Shoudn't the person who sold him the HSA have been answering these questions anyhow? Whenver someone asks me about their HSA, I tell them to check with their agent and that all I can do is process the paperwork at year-end. From the way you explain this, I'm guessing he already had his answer from the person who sold him the HSA - he was just feeding you bits & pieces of info to try and get a response from you that he liked.

I'd tell him I can only give answers that are as good as the info I'm provided, and if he has dug a hole for himself I can't really do anything to get him out of it. Follow it up with: "Oh, one more thing. We'll talk at the end of the year when you bring in your info. Until then, you need to get specific advice from the people who sold you the plan." If you're lucky, maybe he will get mad & go somewhere else.

[Gail in Virginia]

I try to get my clients to discuss transactions that have tax implications with me before they complete the transaction. For that reason, I hate to tell them to go talk to their agent about how something like this works when the agent may be more interested in other aspects of the deal than the tax implications. However, I must admit that I do not like having to deal with insurance products - combining tax regulations with insurance regulations is just more regulation than I want to have to deal with. This gives me a mental block when it comes to insurance, and is something I feel like I need to work on overcoming.

I just finished dealing with a client who made two rollovers in one year. He feels that the banks that he dealt with should have made sure he knew that he couldn't do that. But I am the one that had to deal with the tax problems this caused, and he is the one that is paying for the tax problems it caused. Had he talked to me first, this could have been avoided with a direct transfer in place of one of the rollovers. That is why I think NECPA is right to help her client with this before it gets to be a tax problem.

[JohnH]

Yes, you're right. It really is better that they discuss things with us ahead of time.

But based on this guy's behaviour, it appears that he gave her just enough info to obtain the answer he wanted and now he's backtracking with the REST of the truth. I don't like this type of client any more than the ones who take action without discussing things with us. The ones who feed us selected info are actually worse - they often have an agenda that involves passing out some blame if they can get away with it.

[NECPA in NEBRASKA]

Yes, he is looking for an answer that he likes. Unfortunately, he used a large bank for his HSA and they told him that they know nothing about tax laws and to ask me. He just called me back and said that the bank told him that they can give him back him money, because it is in the same tax year. I couldn't find that anywhere, but I'm done messing around with him.