@BillM223
Are you saying that you did not have HDHP coverage until July 2020? If so, you were not eligible to make a contribution to a 2019 HSA. In this case, the whole contribution should have been withdrawn.
A: Yes exactly that's what my mistake was.
As noted above, the only way to cure the "excess" after those dates is to take a distribution of the entire amount, and when the 1099-SA is sent to you, you enter it and indicate that none of it was used for qualified medical expenses. This will cause it to be added to line 8 (Other Income) of Schedule 1 (1040) to be subject to federal income tax AND you will be assessed a 20% penalty on that amount.
"I told TurboTax that I plan to withdraw this money (and I think paid the 6% fee) but how do I take it out of my HSA?"
If you do what I just suggested, then you are not "withdrawing the excess". Besides, if you told TurboTax that you were withdrawing it, it would not try to roll it over to the next year and ding you 6%...however, because the excess appeared to be form 2019, TurboTax should stop you from trying to withdraw the excess, because in the case, it can't be cured by withdrawing the excess but can be cured only by taking the distribution and paying the income tax and penalty.
Ouch that's a painful 20% penalty plus income tax on it. I understand though it is my mistake and a lesson learned.
Why is it that I cannot cure that 2019 excess contribution by moving some of my HSA balance to my 2021 HSA limit? Also would doing this avoid the 20% penalty?
