No, no, do not despair.
First, if your wife expects to be under an HDHP plan (and have no conflicting coverage) anytime in the near future, then the carryover can be "used up" as a personal contribution (lines 2, 8889) in the next year that she has HDHP coverage. Of course, she will be assessed that 6% penalty every year until this happens.
At any time, however, you can make a distribution and NOT use it for qualified medical expenses - in the case, TurboTax will take the amount in Box 1 of the 1099-SA and add it to your income, and hit you with a 20% penalty. But, at least, the carryover will be gone and no longer the cause of the 6% penalty.
Because this latter solution is relatively expensive, you need to make a decision on what is the best choice. But if you have plenty of cash in the HSA that you want to protect from that annual 6% dinging, you do have a way to just cut it off.
**Say "Thanks" by clicking the thumb icon in a post
**Mark the post that answers your question by clicking on "Mark as Best Answer"
