Thank you again, Opus! I have given this more thought. I think the main question now is, when does the IRS consider the excess contribution eliminated? It seems in all these scenarios, the end goal is to draw the HSA down to $0 and never have an HSA again in my lifetime – which is not necessarily the goal. Quite the opposite, I would like to have a nice sized HSA balance when I retire.
I looked at the instructions for Pub 969 and Form 5329, but can't make sense of it. It's not clear to me if withdrawing funds for medical expenses, like we discussed, would be applied in the same way as withdrawing an excess contribution. Nor is it clear whether it's treated as first-in, first-out (like selling a stock), or how I would know when my account is no longer tainted.
There is an interesting note in Form 5329, and I wonder if it would apply in my case:
"If you timely filed your return without withdrawing the excess contributions, you can still make the withdrawal no later than 6 months after the due date of your tax return, excluding extensions. If you do, file an amended return with “Filed pursuant to section 301.9100-2” entered at the top."
If my goal is to get this straight with the IRS and continue contributing to my HSA, what do you think the best approach would be? I really appreciate all your help with this.
