If you are HSA-eligible for 2021, you can apply the $250 excess toward your 2021 contribution limit. Then it will no longer be considered excess and the penalty will stop.
If you aren't HSA-eligible in 2021, you only have two options.
1. Continue to pay the 6% penalty as long as you maintain a balance in your HSA.
2. Withdraw the $250 as a non-allowable withdrawal (not for medical expenses) and pay the 20% penalty instead. In other words, if you have $1000 of medical expenses, you would withdraw $1250 before December 31, 2021. When you report $1000 of medical expenses, the other $250 will be assessed a 20% non-qualified distribution penalty, and this will also have the effect of removing the excess contribution so it doesn't recur in 2022.
Since you are not enrolled in an eligible plan this year, it sounds like you will be drawing down the account for the foreseeable future and not adding new funds. Eventually, you will zero out. The penalty is based on the amount of excess, or the balance in the account, whichever is lower, so if you end up zeroing out the account due to medical expenses, you will zero out the penalty once and for all, even if you later start making new eligible contributions if your insurance changes again. If the account will hit zero in 3 years or less, you will pay less penalties by carrying the excess until the account is empty (6% per year for 3 more years, instead of 20% all at once). Or, if you plan to leave the money in the account long term and not spend it (4 years or more) then you may want to take the $250 and pay the 20% once and be down with it. If you invested the HSA funds in stocks or mutual funds and are making more than a 6% rate of return, you are still making gains even with the 6% yearly penalty. It's up to you.
