BillM223
Expert Alumni

Retirement tax questions

In this case, you would pay the 20% penalty on everything you withdrew (contributions and earnings), because this withdrawal was not done pursuant to the protocol for withdrawing excess contributions before the due date for the tax year.

 

All of this amount will be subject to income tax as well.

 

This is why Opus discussed your future - will you have HDHP coverage in the next several years? If so, it may be cheaper to just pay the 6% every year until you become eligible to contribute to an HSA. As Opus said, in that future year under HDHP coverage, your carryover will start to be "used up" as a personal contribution (line 2 on the 8889).

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