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Deductions & credits
The penalty for making HSA contributions when you are ineligible is that you pay the income tax (the contribution is not tax deductible) plus a 6% penalty for every year the ineligible balance remains in the account until you spend it.
"A separate debit card for health related expenses was sure nice". Why? It's your money either way. If it was tax-free money, sure. But you don't get the tax deduction and you pay a penalty.
Yes, you need to remove the ineligible contributions. This is a special procedure and not the same as a regular withdrawal. If you earned any money on the ineligible contributions while they were in the account, those earnings are subject to regular income tax.
‎December 9, 2022
11:10 AM