Last-Month Rule
An IRS rule that lets you contribute the full annual HSA limit if you're eligible on December 1st.
What is Last-Month Rule?
The last-month rule is an IRS provision that allows you to contribute the full annual HSA contribution limit for a year if you're HSA-eligible on December 1st, regardless of when you became eligible that year.
Normally, if you're only HSA-eligible for part of the year, your contribution limit is prorated by months. But the last-month rule overrides this - if you're eligible December 1st, you can contribute the full amount.
The catch is the "testing period": you must remain HSA-eligible through December 31st of the following year. If you fail this test (by switching to non-HDHP coverage or enrolling in Medicare), excess contributions become taxable income plus a 10% penalty.
Frequently Asked Questions
How does the last-month rule work?
If you're HSA-eligible on December 1st, you can contribute the full year's limit even if you were only eligible for part of the year.
What's the testing period?
You must stay HSA-eligible through December 31st of the following year. Failing this test triggers taxes and a 10% penalty on excess contributions.
Is the last-month rule worth the risk?
It depends on your situation. If you're confident you'll maintain HDHP coverage, it maximizes your tax-advantaged contributions. If uncertain, prorating may be safer.
Related Terms
Contribution Limit
The maximum amount you can contribute to an HSA in a calendar year, set annually by the IRS.
Health Savings Account (HSA)
A tax-advantaged savings account for people with high-deductible health plans to pay for qualified medical expenses.
High-Deductible Health Plan (HDHP)
A health insurance plan with a higher deductible and lower premiums that qualifies you to open an HSA.
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