What Happens If I Exceed My HSA Contribution Limit?

Contributing to a Health Savings Account (HSA) is a great way to save for medical expenses while enjoying tax benefits. However, it's essential to stay within the set contribution limits to avoid potential penalties. So, what exactly happens if you exceed your HSA contribution limit?

When you contribute more than the allowed limit to your HSA, the excess amount is subject to taxation. The IRS imposes a 6% excise tax on the excess contributions each year until they are corrected.

To rectify an excess contribution, you have two options:

• Withdraw the excess amount before the tax-filing deadline, including any earnings generated by the excess contribution. The excess amount is considered taxable income and is subject to a 10% penalty if you're under 65.
• Let the excess contribution stay in the account but ensure not to make any additional contributions the following year to avoid further penalties.

It's crucial to monitor your HSA contributions throughout the year to prevent exceeding the limit unintentionally. Keeping track of your contributions can save you from unnecessary taxes and penalties down the road.

Contributing to your Health Savings Account (HSA) can be a smart move for your financial health, but it's important to keep your contributions within the IRS limits. If you accidentally contribute more than the allowed amount, it can create unnecessary hassle.

The repercussions include a 6% excise tax on the excess contributions each year until they are rectified. This means you want to be vigilant about monitoring your contributions!