I had an HSA Excess Contribution of $1600 by my employer in 2020. I paid the 6% tax in my 2020 tax return, but missed the requirement to make a non-qualified withdrawal before April 2021. I am paying the 6% additional tax again this year. Since it is too late to make the non-qualified withdrawal without more penalties and I am no longer in a High Deductible health plan, I'm trying to understand my best option. The Turbotax Help says that one option is to take qualified withdrawals for medical expenses until my total HSA balance is zero. It would likely take a couple of years to incur enough expenses to do that. But if I'm able to do that, will I still have to pay the 20% penalty plus the 6% additional tax in the year the balance goes to zero, plus add the excess contribution to my income for 2020? Or is it best to make the non-qualified withdrawal now, pay the 20% penalty and be done with carrying over the excess?
Thank you for your help.
