What to Do If You Over-Contribute to an HSA, IRA, or 401(k)
It’s a good idea to use tax-advantaged accounts to keep more of your hard-earned cash in your pocket. Some of the most popular accounts include HSAs, IRAs, and 401(k)s, but did you know there is a limit on the contributions you can make? These accounts are governed by the IRS, so it’s important to make sure you never violate the limit. But, if you find yourself in this position, here is a guide that will teach you how to fix the excess and avoid expensive penalties.
What is an HSA?
An HSA is very similar to an IRA or 401(k), except that it’s for paying medical expenses instead of your retirement fund. To get an HSA you must be enrolled in a qualified high-deductible health plan (HDHP) that you purchased in the healthcare open market or through an employer.
Contributions to your HSA can come from you, your employer, or someone else. Any contributions you put in are deductible on your tax return. But, when you distribute funds for medical care, they are tax-free.
What are the Contribution Limits for an HSA?
For 2017, you can contribute $3,400 to an individual HSA, or $6,750 for a family plan. As of 2018, the contribution limit will rise a little. Next year’s limits are $3,450 for individuals and $6,900 for a family plan.
If you’re 55 years old or more, you can make extra catch-up contributions of $1,000 every year.
What to Do If You Contribute Too Much?
If you exceed this limit you must remove the extra money to comply with IRS rules. It can be easy to over contribute, especially if your employer feeds money into your HSA as these contributions can be variable.
If you’ve paid too much into your account, you’ll need to withdraw the amount plus any interest it made. If you fail to do so, you’ll be charged a penalty rate of 6% each year on the excess. However, it’s not always easy to figure out the correct amount to withdraw, so make sure you contact the administrator of your HSA. A Form 1099-SA must be filed, and your Form 5498-SA must be corrected.
