Understanding Overfunded HSA: What Qualifies as an Overfunded HSA?

Health Savings Accounts (HSAs) are a valuable tool for managing medical expenses while enjoying tax benefits. However, it's essential to understand the rules surrounding HSA contributions to avoid overfunding the account. So, what qualifies as an overfunded HSA?

An HSA becomes overfunded when contributions exceed the yearly limits set by the IRS. In 2021, the contribution limit for an individual is $3,600, and for a family, it is $7,200. If you contribute more than these limits to your HSA, the excess amount is considered overfunded.

Overfunding your HSA can result in tax implications. The excess contributions are subject to a 6% excise tax unless corrected timely. It's crucial to monitor your HSA contributions throughout the year to prevent overfunding.

Health Savings Accounts (HSAs) are an incredible way to not only save for medical expenses but also leverage tax advantages. It's important to keep the IRS guidelines in mind because exceeding your contribution limits can lead to complications. So, what exactly is an overfunded HSA?