I overfunded my HSA in 2023 and that overfunded amount is still in my HSA. I know that each year that amount is carried over and I am taxed 6% on it. I will withdraw that exact amount in 2025 and will receive a 1099-SA form showing that amount as a normal distribution (and therefore taxable, along with earnings on that amount) for my 2025 taxes. Will that normal distribution satisfy and then remove the carryover overfunded amount on my 2025 taxes if just listed as a normal distribution? I know that TT will create Forms 5329 and 8889 during the interview as well - just wanted to make sure this is addressed finally.
I am over 65 so shouldn't have to pay that 20% penalty for that withdrawal, correct? And if I use that money for medical expenses in 2025, will that make a difference so that it would not be treated as taxable income or will an HSA overfunding withdrawal always be considered taxable regardless of how it is used? Thank you.
