How does the last month rule work?

The last month rule says that individuals who are HSA-eligible on the first day of the last month of the year (December 1) can make the full HSA contribution based on the type of coverage they have December 1 (individual or family) – they do not have to pro-rate their contributions.

However, these HSA account holders must remain HSA qualified (can switch from a family to a self-only plan) for the next calendar year or will pay taxes plus a 10% penalty on the excess contribution (above the pro-rated amount) in the year that they fail the testing period.

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