What is the penalty for making an excess contribution to my HSA?

Health Savings Accounts (HSAs) are a great way to save for medical expenses tax-free. However, it's essential to know the rules and limits to avoid any penalties, especially when it comes to contributions. If you contribute more than your allowed limit to your HSA, you'll be subject to penalties.

The penalty for making an excess contribution to your HSA is 6% of the excess amount for each year that the excess remains in your account. This penalty is imposed by the IRS to discourage overfunding and to ensure fair usage of HSAs.

To avoid this penalty, it's crucial to stay within the contribution limits set by the IRS. For 2021, the contribution limit for individuals with self-only coverage is $3,600, and for those with family coverage, it's $7,200. If you're 55 or older, you can make an additional catch-up contribution of $1,000.

Understanding Health Savings Accounts (HSAs) is vital for anyone looking to save on medical expenses without the added tax burden. Careless mistakes, such as exceeding contribution limits, can lead to penalties that diminish your savings. If you find yourself in a position where you've contributed more than you were allowed, the IRS imposes a hefty 6% penalty on the excess contributions for each year it remains in your account.