Excess Contributions Carryover refers to the amount of contributions made to a retirement account or other tax-advantaged savings vehicle that exceeds the allowable limit for a given tax year. This excess amount can be carried over to the next tax year, allowing the account holder to apply the excess contribution against the allowable limit in that subsequent year.
For example, if an individual contributes $7,000 to a Health Savings Account (HSA) in a year when the contribution limit is $6,000, the $1,000 excess contribution can be carried over to the following year. In the next tax year, the individual would be allowed to contribute only $5,000 to remain within the total allowable limit, effectively accounting for the previous excess contribution. This mechanism helps individuals maximize their contributions over time while adhering to regulatory limits.
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