Per subsection 223(d)(1)(A)(ii), the contribution limit is the sum of the dollar amounts for the HDHP family coverage limit plus the "55 and over" catch-up, apparently REGARDLESS of plan type (self-only vs. family). However, if one has a self-only policy and/or is younger than age 55, the amount deductible per 223(b) is less. However, I see nothing that indicates that a non-deductible amount of a contribution equal to or under the contribution limit cannot be made or accepted by the trustee. In
223(f)(3) where excess contributions are dealt with, nowhere does it seem to indicate that said contributions can't be made or must be withdrawn; only that they may be considered excess and if withdrawn in the proper time period, don't constitute recognized gross income. Furthermore, within the section itself, there appears to be no penalty for leaving excess contributions in the HSA. The penalty applies only to withdrawls but may be bypassed by death, disability, turning age 65 (qualifying for medicare based solely on age), or the period noted above for withdrawing excess contributions.There is still the 6% excess contributions excise tax under section 4973.
4973(g) defines the excess amount as the amount exceeding the deductible amount. However, that still does not mean that a non-deductible amount cannot be contributed as long as it's less than the contribution limit nor does it force exposure to income tax if withdrawn after the [extended] due date of the tax return. I find it inconsistent for section 4973 to call this an excess contribution when 223 does not.Therefore, if someone under age 55 in a self-only high-deductible plan contributes $7,250 (for 2012 e.g), he can deduct only $3,100, but suffers NO 20% penalty on $4,150 if he leaves that [excess part of the] contribution in the HSA until age 65 (or dies or becomes disabled). Am I reading that correctly? [There will be a $249/yr excise tax (6% of $4,150) under section 4973 of which presumedly the $3,100 AGI deduction will more than offset. Even in the 10% income tax bracket, a taxpayer comes out ahead by $61 for one year.]
Equally: Someone who is enrolled in Medicare has no deduction but can still contribute without penalty? It's still an excess contribution but meets the 223(f)(4)(c) exception to the 20% penalty if withdrawn (but it need not be withdrawn). If withdrawn after the time for filing the tax return for the year of the [excess] contribution (including extensions) but applied to qualified medical expenses (in a subsequent year), it's not income either. Regardless, the 6% excise tax would apply to that year's entire contribution (but not its earnings).
I do note that in IRS Publication 969, page 5, it says that a self-only person is limited to a contribution of $3,100. However, statute says that such a person is actually limited to a DEDUCTION of $3,100 for the contribution - not the same thing. The maximum contribution per statute is $7,250. Furthermore, in the example at the top of column 2, the IRS seems to say that the person who overcontributed must recognize the amount of the excess contribution as income even when NOT withdrawn, but where does it say that in 223(f)(3)(A)? The example further imposes the 10% penalty (now
20%), but such only applies to withdrawls. Congress didn't authorize penalty applicability for an amount left in the HSA. Then again on page 6 of the same pub., the IRS says that the contribution limit is zero if one is enrolled in Medicare, while the law says that the deduction is zero if one is ELIGIBLE for Medicare; again, not the same thing.I have used the revision of the law current to January 7, 2011 on Cornell University's server.
So, why does the IRS say one can't do that when the law says one can? Comments?