Thank you so much @dmertz ,
In 2024, me and my spouse, combined, contributed into our corresponding (me into my and my spouse into the spouse's HSA) HSAs less than max allowed:
I did $5,500
My spouse did $1,600
So the total is $7,100 which is less than $8,300 allowed for a married couple in 2024.
If I understand your response correctly, it seems like my total contributions in 2024 are not only the above calculated $7,100 we contributed in 2024 but also additional $1,500 carried from the previous year of 2023. So the total is $8,600 which means my total excess in 2024 is $300, correct?
Perhaps that is why Turbotax, at one of the last steps related to our HSAs displayed a message indicating that I have $300 of Excess Contribution and it presented 3 options:
1. OK, we'll withdraw the full $300 excess contribution by April 15, 2025
2. We'll withdraw some of the excess contribution by April 15, 2025
3. NO, we're not going to make this withdrawal
The options #1 and #2 are not really options because below them there was a note "Unfortunately, all of your excess contribution is caused by a prior year excess contribution. It is too late to remove any of this excess contribution."
So the only my option is #3 for which TurboTax hints: "OK. Just so you know, this amount will be taxed an extra 6%."
It looks like the above experience I have in TurboTax is exactly what you explained.
If I understand correctly, there is no way for me to avoid the 6% penalty on the excess of $300 now - while filing for 2024. But if I want to eliminate that when I will be filing for 2025, I need to "remove" those $300 so it is not considered as an Excess Contribution when I file taxes for 2025, in 1 year from now. Can you please share how I can achieve the highlighted in bold
"... obtain an ordinary distribution of $1,500 and make it taxable by not applying it to medical expenses ..."
?
I didn't highlight the $1,500, because, per the information I provided above, that amount is now $300.
Do I need to issue some special request to my employer or the company managing my HSA?
