What is the risk of making post-tax HSA contributions w/o deductions, upon withdrawal?

Asked by: Stanley Wishon

What happens if you contribute after tax dollars to an HSA?

If you contribute to your HSA with after-tax dollars, you may deduct the contribution amount, subject to the maximum annual contribution limits, from your taxes at filing time.

What happens if you don’t withdraw excess HSA contributions?

Generally, the IRS penalty equals 6 percent of your excess contributions. For example, if you have a $100 excess contribution, your fine would be $6.00. If you contributed $1,000 over, it would be $60. This penalty is called an “excise tax,” and applies to each tax year the excess contribution remains in your account.

What are the disadvantages of an HSA?

The main downside of an HSA is that you will have a health insurance plan with a high deductible. A health insurance deductible is the amount of money you will need to pay out-of-pocket each year before your insurance plan benefits begin.

Do HSA contributions reduce your taxable income?

A health savings account (HSA) is a tax-advantaged way to save money. HSA contributions reduce taxable income, investment growth in the account is tax-free, and qualified withdrawals are tax-free. Money leftover at the end of the year in an HSA is not forfeited like money leftover in a flexible spending account (FSA).

When should I stop contributing to my HSA?

Under IRS rules, that leaves you liable to pay six months’ of tax penalties on your HSA. To avoid the penalties, you need to stop contributing to your account six months before you apply for Social Security retirement benefits.

Why is my HSA deduction 0?

This means that there is no deduction for the code W amount, because it was never in your income in the first place. If you made HSA contributions directly to the HSA custodian, then this amount appears on line 25 on Schedule 1 (Form 1040).

Can an employer take back HSA contributions?

Yes, in certain instances, an employer can recoup, or recover, contributions made to an employee’s health savings account (HSA).

How do I avoid HSA penalty?

To avoid a tax penalty, you should stop contributing to your HSA at least 6 months before you apply for Medicare.”