Deductions & credits

I guess the point behind my question was to determine the proper procedure to shutdown this HSA account and what to do with the balance in it. (I only mentioned the debit card because it was the most useful thing in the HSA, not because I was trying to keep it. Unfortunately that comment turned out to be a distraction.)

As best as I can tell, the ineligible contributions procedure is when the HSA is a valid one and you have contributed too much. Apparently you have to contact the company managing the HSA (the custodian) and request to have the excess funds transferred out, so it will not look like a transaction and have to follow the rules for what is allowed.

Looking at publication 969, there are clear instructions about what to do with excess contributions: Excess contributions. You will have excess contributions if the contributions to your HSA for the year are greater than the limits discussed earlier. Excess contributions aren’t deductible. Excess contributions made by your employer are included in your gross income. If the excess contribution isn’t included in box 1 of Form W-2,
you must report the excess as “Other income” on your tax return.

So, the answer to my original question is "Yes", the money should be removed. The next question is how is the best way to do that. Talking with the Custodian, they have a procedure for transferring the balance to a new custodial account, but not what to do about excess contributions. Since the entire thing is excess, really nothing is subject to the Qualified Expenses rules. Looking at 969 again, we have: You may withdraw some or all of the excess contributions and avoid paying the excise tax on the amount withdrawn if you meet the following conditions.

I believe that I meet those conditions. It's tempting to just transfer the balance to my bank account, but I'm going to verify that.