@lemondrop642 wrote:
@dmertz @Opus 17 could you explain how, if at all, you need to mark excess contributions as being used for future year contributions where you don't reach your limit with contributions for the future year? I'm having a hard time following but it sounds like you might not need to do anything? Does the IRS track your excess utilization in future years or do you need to track and identify that yourself? Also do you have any links to resources that describe this strategy? Looking at Publication 969 I couldn't find anything that suggests what you are describing is possible. Thanks!
The excess gets tracked on form 5329 in section 7. Your tax software should do it, but you need to put it in writing. (The IRS won't give you credit for anything unless you put it in writing and sign it.)
For example, if you had an excess contribution in 2022, your tax return would include a form 5329 that assesses the 6% penalty. When you prepare your 2023 return, you use the information from the 2022 form 5329 plus your current contributions, withdrawals, and eligibility, to calculate whether you have used up the excess, or spent it for medical needs, or it is still in the HSA and needs to be penalized again.
