HSA 101
November 30, 2020

What You Need to Know About the “Last Month Rule”

You might be eligible to max out your HSA all at once. Here’s how!

There’s an IRS rule that could allow you to put a full year’s worth of contributions into your HSA. 

Yes, that might sound too good to be true, but good news for you, reader, it’s real! And you might be eligible. So let’s skip the government-speak and break down how the last month rule works.

What exactly is the “last month” rule? 

Also known as the “full-contribution” rule, this rule gets two different names to make it even more confusing! So if you’ve seen either of these before and wondered what it’s all about, they mean the same thing. Essentially, according to IRS Publication 969, you’re able to max out your HSA all at once if you got a new high-deductible health plan this year and it started before December 1. This complex rule exists to ensure people who didn’t have an HDHP and HSA all year are still able to max the HSA out to the best of their ability regardless of the new plan’s start date.

How does this rule work?

Typically, HSA contributions are prorated throughout the year if they’re coming straight from your paycheck. For example, if you get paid twice a month and want to max out your HSA by the end of the year, roughly $150 of each paycheck would go directly to your HSA (see math breakdown). If your circumstances made you eligible for special enrollment sometime this year, you might have had to change your healthcare coverage. If you enrolled in an HDHP plan with an HSA, and it started before December 1, you do not have to adhere to the usual prorated contributions because you are considered to be an eligible individual for the entire year.

So...what’s the catch?

Of course, there has to be one. If you take advantage of the “last month” rule, you have to keep the same HDHP coverage until November 30 of the following year. If your insurance changes or you lose coverage and your HSA eligibility changes, you’ll face extra taxes and penalties for any contributions you made due to the “last month” rule. So, it’s up to you to take the calculated risk on the “last month” rule. If you love your HSA and the flexibility it allows to spend, save, and invest, we’d say it’s definitely worth the risk!

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