"Withdraw the excess if you can." - I said this because I had no idea how much you had left in your HSA, what with all the dollars you had been withdrawing. I am happy that your HSA is still flush.
"Does not the “creation” of a 2021 1099-SA in the amended return throw up flags to the IRS?" - As it turns out, the 1099-SA has been identical from year to year for more than a decade. Since all the IRS sees are the numbers in the boxes, they won't have any way of knowing that the form was for a different year (it was different in the old days when we still filed on paper).
In any case, yes, the IRS gets copies of forms that are sent to you, so I would expect that there would be a dissonance in what the IRS gets. But that's OK, because there was no way to avoid it because of what the HSA custodian did (allowed a withdrawal for 2021 excess contribution after the 2021 due date). So you will in any case have to document everything that you have done and why, in case anyone ever asks.
"Also, since I am over 65, am I not exempt from the 20% penalty?" - Other things being equal, this is true. However, what I was trying to do is cut off the 6% carryover year after year (which, again, I did not know would apply to you because if your HSA ran out of cash, it wouldn't).
And I missed your birthday party so your current age was not on the top of my mind.
In any case, we don't want TurboTax to calculate that 6% a year every year on your once cash-flush HSA.
To be fair, the IRS has never addressed the situation of a taxpayer going on Medicare with a carryover rolling over year after year. Because you are on Medicare, you can never be eligible to contribute to your HSA again. So the normal way of eliminating the rollover can't happen.
Why don't you go ahead and enter this pseudo-1099-SA. I think you are correct that TurboTax will not add the 20% penalty, yet will cut off the rollover, so you won't have to worry about what the IRS may or may not say later when they get around to thinking about this issue.
Have I covered everything?
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