@wag1 wrote:
@Opus 17 All of my HSA contributions from 2019-2021 are through payroll deductions. My employer allows me to specify one time HSA contributions, as well as recurring contributions. My thinking was to max out my HSA early and then invest it (I am currently not investing any HSA funds). If I go the route you outlined of clearing this out in 2022 by contributing $X less than my maximum eligibility, then I might as well invest the funds now.
It is shocking to me that this cannot be corrected until 2022 (unless I take the 20% penalty or my employer works some paperwork magic), given that the 2019 excess has already been taxed as income tax, a 6% penalty excise tax was payed, and the funds have not been invested so there have been no gains.
Thank you for helping to explain things to me!
The problem is that the excess (disallowed) contribution is taxed every year that it remains in the account. This is probably to negate the investment gains. Otherwise, a person could make a disallowed contribution, pay the income tax and the one-time penalty, and then have indefinite tax-free growth into the future all from a disallowed contribution.
Maybe you can earn more than 6% this year, depending on luck and the market, and offset the effect of the penalty. Good luck.
