"I'm gathering now from discussing with you, that the QME distribution in 2020, even though greater than the amount of the excess contribution, and even though it resulted in my HSA balance being under the allowable limit, was not effective in curing the $1700 excess contribution penalty. "
Correct, it did not cure the excess that just keeps rolling over.
"since applying the excess to a subsequent year's HSA doesn't seem to fit my circumstances. There is no excess to apply. "
There is still the excess, right? It's just that you have nothing to apply it to, since you are no longer eligible to contribute to an HSA.
"I guess my only option now is to make a distribution for NON-qualified medical expenses, as you mentioned,"
You have two options (sort of): (1) if the excess that has been carried over is MORE than the amount remaining in your HSA (I can't keep track of your current balance), then withdraw your entire HSA amount as for non-qualified medical expenses. You will pay income tax and penalty on that amount (but not the whole excess), and then your HSA balance goes to zero.
Once this happens, your 6% penalty also goes to zero and will stay that way.
(2) If the excess carried over is less than your balance in the HSA, withdraw the excess amount as non-qualified expenses, pay the income tax and the penalty, then be sure to use the rest of the HSA balance on real medical expenses. The withdrawal of the excess will will stop the excess from rolling over any more and no more 6%.
OK?
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