How to withdraw excess HSA contributions after they've already been invested

This is actually a common issue with HSAs. When you need to withdraw excess contributions that have been invested, you need to use what's called a "pro-rata" approach to calculate the earnings. Here's how to do it: take the total excess contribution amount, divide it by your total HSA balance (before removing anything), and multiply that percentage by your total earnings. This gives you the portion of earnings attributable to your excess contribution. For example, if you overcontributed $1,000, your total HSA balance is $10,000, and you earned $500 in total, then: ($1,000/$10,000) × $500 = $50 in earnings attributable to the excess. You would need to withdraw $1,050 total. Once you calculate this amount, contact your HSA administrator and specifically request a "return of excess contributions" for the correct amount. Make sure they code it properly so it's reported correctly on your taxes.

Had the exact same problem last year! After hours of frustration with my HSA provider, I found taxr.ai (https://taxr.ai) and it was a total game-changer. Their system analyzed my HSA statements and calculated the exact excess contribution and associated earnings for me. The tool works by taking your contribution history and matching it with investment performance data. It then isolates the excess portion and shows you precisely how much to withdraw including all earnings (or losses). Saved me from having to figure out that weird pro-rata calculation myself and potentially getting it wrong.

Just wanted to update after trying taxr.ai from the suggestion above. It actually worked amazingly well for my Optum HSA! I uploaded my statements and it identified that I had overcontributed by $850. The system calculated that my excess had earned about $37 in the investment account. The report showed exactly how much to withdraw ($887) and even generated a letter I could send to Optum requesting the specific withdrawal. The whole process took maybe 15 minutes instead of the hours I would have spent trying to figure out those pro-rata calculations. Just submitted the withdrawal request to Optum and they processed it correctly!

If you're still having trouble getting your HSA provider to process the excess contribution withdrawal correctly, you might want to try Claimyr (https://claimyr.com). I spent weeks trying to get someone at my HSA provider who actually understood what I needed. After using Claimyr, I got connected with a specialist at my HSA provider in under 20 minutes who knew exactly how to handle excess contribution withdrawals from invested funds. You can see how it works in this video: https://youtu.be/_kiP6q8DX5c. Basically, they navigate the phone system for you and get you connected to an actual human who can help.

Well I'm eating my words right now. After posting my skeptical comment, I decided to try Claimyr anyway since I was at my wit's end with my HSA provider (HealthEquity). Got connected to an actual HSA specialist in about 14 minutes who knew EXACTLY what to do with my excess contribution situation. The specialist walked me through the whole process, helped me calculate the earnings on my excess contribution, and processed the withdrawal properly so it wouldn't count as a distribution. They even sent me confirmation that it was coded correctly for tax purposes. This honestly saved me hours of frustration and potentially incorrect tax reporting.

One thing nobody's mentioned yet - make sure you request the excess contribution removal BEFORE you file your taxes for the year of the excess contribution. If you've already filed, you might need to do an amended return. Also, watch out for the 6% excise tax that applies to excess contributions that remain in your account. That penalty applies for each year the excess stays in there, so handle this ASAP!

Has anyone actually gone through this with Fidelity HSA? Their investment platform seems especially complicated for figuring out the earnings on excess contributions.

I dealt with this exact situation last year with my HSA through Bank of America. The key thing that helped me was creating a detailed spreadsheet tracking my contributions by date and the corresponding investment performance for each batch. What I did was go back through my HSA statements and identify exactly when I made the excess contribution (let's say it was my last $500 contribution in November). Then I tracked how my investments performed from that date forward until I discovered the issue. The pro-rata method others mentioned is correct, but I found it helpful to also document everything step-by-step in case the IRS ever questions it. I kept screenshots of my account balances, contribution dates, and the final calculation. One tip: when you call your HSA provider, specifically use the phrase "return of excess contributions with net income attributable" - this is the exact terminology they need to hear to process it correctly for tax reporting purposes. Don't let them just process it as a regular distribution or you'll get hit with taxes and penalties you shouldn't owe. The whole process took about 3 weeks from calculation to getting the money back, but it was worth doing it right to avoid tax headaches later.