Carryover of 2022 excess HSA Contributions

[the_flying_glove]

I did not withdraw a $76 excess contribution to my 2022 HSA before the deadline in 2023. So the excess shows up as a contribution to my HSA on line 2 of form 8889 for my 2023 taxes. When Turbo Tax asks me if I want to withdraw the excess - it tells me I am too late to withdraw the excess - so I have to select the option to not withdraw it and get the 6% penalty.  I retired in 2022 so my maximum contribution for 2023 is $0. I left Line 1 of form 8889 with no entry since I did NOT have an HDHP in 2023. So that's an error in Turbo Tax because it won't let me leave as no entry. I want to withdraw the $76 to break the cycle of if appearing as a contribution in 2024. I can send my HSA the form "Excess Contribution and Deposit Correction Request Form" to my HSA to request the $76 to be withdrawn - but it looks like the only way to make turbotax aware of this is to modify form 8889 - Part I - Line 2 Smart Worksheet line C to $76. Unfortunately - form 5329 still shows $76 on line 49 as excess contributions for 2023. The tax guidance screen on the page to withdraw money from my HSA indicates that this withdrawal will be an unqualified withdrawal that will be subject to a 20% penalty (what if I use it for medical supplies?). It also says the only other ways are to make qualified withdrawals to bring my HSA balance down to $0 - or get back into an HDHP?

My question is if it is proper to hand modify the worksheet on form 8889 as I mentioned, and perform the withdrawal - but spend the money on a qualified purchase.  Will this somehow remove the excess contribution for 2024 if I do not bring the HSA account to a $0 balance? I am going to have the $76 excess recorded on form 5329 line 49 for 2023.

[BillM223]

No, please do not hand-modify the 8889 - it voids the Accuracy Guarantee and may block you from e-filing.

I assume that you meant by "retired" that you are now on Medicare, so, as you know, you cannot contribute to the HSA any longer. 

There are two ways to end a carryover: (1) use the carryover up in the subsequent year, and (2) make a distribution not for medical expenses.

It seems that you recognize that you can't do #1 because you are no longer eligible to do so (no HDHP). 

So that leaves only #2: call the HSA custodian and ask for a distribution. When you get the money, go to a baseball game, pay your grocery bills, buy roses for your mother - just don't spend it on qualified medical expenses.

So please don't sneak around and try to fudge the 8889 - to make this carryover stop, you have to make that distribution and then pay income tax on it and a 20% penalty...but then you will be done with it.

[the_flying_glove]

Thanks for your reply. I saw in another question asked to the community that to enable me to file, I have to select something other than "No Entry" for Line 1 of the 8889 form. In my situation, should I just select "Self", leave the disposition of the $76 excess HSA contribution as "No - I will not request the withdrawal of the Excess HSA contribution" (because turbotax won't let me pick a withdrawal option) and then go ahead and make the withdrawal but not spend it on a qualified purchase?

[BillM223]

"should I just select "Self"" - yes

"leave the disposition of the $76 excess HSA contribution as "No - I will not request the withdrawal of the Excess HSA contribution" (because turbotax won't let me pick a withdrawal option) " -- yes, but don't blame TurboTax, it's the IRS' rules.

"then go ahead and make the withdrawal but not spend it on a qualified purchase?" - yep, go buy roses for your mother...