@AS3 wrote:
Thank you for getting back. Appreciate the prompt response. It would have made sense if I would have actually withdrawn it.
I was given an option - reading through posts on TT community and chose to carry it over to this tax year 2020. So if I have already paid tax on it, was I better of just actually withdrawing so I could have paid pre-tax contributions again this year in 2020? Due to the excess rolling over, I could not make an contributions this year.
I'd like to understand this better for the future. Hard to do anything this late in the year now I guess :(
If you left the excess in the account, then you pay income tax on the excess (disallowed) contributions, plus a 6% penalty. Then if you are eligible to contribute in 2020, you can use the excess toward your 2020 contribution limit. You will get a new deduction on your 2020 return. Make sure to run the entire HSA interview and answer the questions about prior year excess contributions.
I don't understand why you think you aren't allowed to make contributions in 2020. If you are covered by a single HDHP, your limit for 2020 is $3550. If you need to apply $1300 excess from 2019 toward your 2020 limit, then you can still contribute $2250 for 2020 and take the tax deduction.
