In July 2020, I instructed my HSA custodian to make the max deductible contribution ($4500 for a 60 yr old) to my pre-existing HSA account for TY 2019 because for the entire month of December, 2019, I was enrolled in a HDHP (Self Only Plan).
In 2021, preparing TY 2020 tax returns I realized that the failure to maintain HDHP coverage in 2020, resulted in an excess contribution of $4125.
I did not have HDHP coverage at all in 2020.
On December 31, 2020 the balance of that HSA account was $11,600
Considering the following:
I don't expect to enroll in a HDHP in 2021 or the following years, but that may change?
I don't expect to have enough qualified medical expenses to exhaust and empty the HSA anytime soon.
I do turn 65 in 2025
I have yet to file my 2020 taxes and plan to request an extension
I'm still unclear about the current & future ramifications of withdrawing the excess $4125 now or later (maybe 2025)?
If I understand correctly, in TY 2020 that $4125 is subject to both a Federal 10% penalty and 6% tax?
Does New York State/NYC also impose any tax or penalties on all or part of that $4125?
If in 2021, I withdraw that $4125 (and any earnings):
Am i correct that withdrawal will result in a 20% penalty in TY 2021 for a non-qualified distribution?
In TY 2021, would that $4125 also be subject to the 10% penalty & 6% tax or any other taxes/penalties?
Beginning TY 2022, is the excess contribution matter now closed and no longer subject to any related taxes, fees, and/or penalties?
OTOH:
If that $4125 stays in the HSA, I presume that in TY2021 that $4125 is subject to another 6% tax ($247.50) and that 6% repeats each following year that $4125 remains in the HSA account?
Are there any other additional taxes, penalties that accrue each TY the $4125 remains in the account?
Finally:
Is there any benefit to waiting to withdraw the $4125 in TY 2025, once I turn 65?
THANKS!
