"it should have been withdrawn in 2018 and does not give the option to withdraw it now."
That is correct; the IRS rules are that the excess has to be withdrawn by the due date of the return, which you understand that you missed.
There are two choices:
1. Pay the 6% a year until your HSA balance goes to zero because of qualified medical payments you have made (in your case, I don't know if this will be one year or many years - it depends on your spending).
2. Ask for the withdrawal from the HSA custodian, and when you get the 1099-SA next year, report that this was not for qualified medical expenses. This will cause the distribution to be added to Other Income and a 20% penalty, but the carryover of the excess will be cut off.
2.a A variation on #2 is if you received a 1099-SA this year for other qualified expenses. If the 1099-SA distribution amount is less than the carryover, then you can tell TurboTax this year in the 1099-SA interview that X amount (where X is the amount of the carryover) is not for qualified medical expenses. This will cause the extra income and penalty this year, but it will cut off the excess this year, too. Then you won't have to do a separate distribution (#2).
It's your choice.
**Say "Thanks" by clicking the thumb icon in a post
**Mark the post that answers your question by clicking on "Mark as Best Answer"
