Here are a few options for getting rid of an excess contribution that's continuing to accrue penalties year after year:
- You can simply take a nonqualified withdrawal of the excess amount. This distribution will be taxable and subject to a 20% penalty.
- You can take qualified withdrawals (for medical expenses) that take your HSA balance to $0. The penalty is assessed on the lower of your excess contribution or your HSA balance at the end of the tax year. By drawing the account down to $0, you will have no more penalty assessed.
- You can change your health insurance plan back to an HDHP that is HSA-eligible again. This will allow you to use up the excess contribution.
@Dasstc
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