What Should You Do With Excess Contributions to HSA?

When it comes to managing your Health Savings Account (HSA), it's essential to understand what to do with excess contributions. If you have contributed more than the allowable limit to your HSA, you may be subject to taxes and penalties. Here are some important actions to consider when dealing with excess HSA contributions:

1. Withdraw Excess Contributions: You have the option to withdraw the excess contributions before the tax filing deadline for the year. This will help you avoid any penalties associated with overfunding your HSA.

2. Reallocate Funds: If you have excess contributions in your HSA, you can reallocate them to the following year's contribution limit, as long as it stays within the allowed limit for that year.

3. Pay Taxes and Penalties: If you do not withdraw or reallocate the excess contributions, you may be subject to income tax on the excess amount along with a 6% excise tax penalty.

4. Monitor Contribution Limits: Stay updated on the annual contribution limits set by the IRS to ensure you do not exceed the allowable amount to avoid dealing with excess contributions.

5. Seek Professional Advice: If you are unsure about how to handle excess contributions to your HSA, consider consulting a financial advisor or tax professional for guidance.

Managing your HSA contributions effectively is key to maximizing the benefits of this tax-advantaged account. By understanding the rules and options available for dealing with excess contributions, you can avoid unnecessary taxes and penalties while making the most of your HSA.

When managing your Health Savings Account (HSA), it’s crucial to be conscientious about your contributions. If you find yourself over the contribution limit for the year, there are several proactive measures you can take to mitigate financial repercussions.