Sorry @Opus 17 I jumped into this thread and probably made it confusing. I am not OP, I just had a different question that was related.
I had $3,850 excess in 2023. Already amended to pay taxes and 6% penalty on that $3,850 in 2023.
In late 2024, I took a distribution of $4,098 for excess + earnings on the $3,850. It should be Code 1 because it was too late to simply withdraw without penalty. I know I have to pay taxes + 20% penalty on the $3,850 to clear Form 5329 going forward, but someone else on this forum said I could avoid paying the taxes + 20% on the earnings of $248 if I claim $248 of medical expenses on Form 8889 Line 15, because I only need the original $3,850 to clear the 2023 excess from Form 5329. This would result in the $248 earnings never being taxed, which I found odd.
Would the earnings wind up somewhere else on the 1040? Or is using the $248 as a qualified medical expense not allowed under these circumstances?
