What is HSA Overdraft?

Understanding the concept of HSA overdraft is essential for individuals who have a Health Savings Account (HSA). An HSA is a tax-advantaged savings account that allows you to save money for medical expenses. The funds contributed to an HSA are tax-deductible, grow tax-free, and can be withdrawn tax-free for qualified medical expenses.

However, HSA overdraft is a term that does not apply to traditional banking accounts like checking or savings accounts. Instead, when discussing an HSA, the term 'overdraft' typically refers to exceeding the annual contribution limits set by the Internal Revenue Service (IRS).

Contributions to an HSA are subject to annual limits based on your type of health insurance coverage (individual or family) and age. If you contribute more than the allowed amount to your HSA in a given year, you may incur penalties from the IRS.

Understanding HSA overdraft is crucial for individuals with a Health Savings Account (HSA). An HSA allows you to set aside pre-tax money for qualified medical expenses, providing a financial cushion for unexpected healthcare costs.