What is the HSA last-month rule?
The HSA last-month rule lets a taxpayer who is an eligible individual on December 1 of the tax year contribute as if they had HDHP coverage for the entire year, with a 12-month testing period that follows the contribution year. If the taxpayer fails to remain eligible during the testing period, the dollars allowed under the rule are added to income and subject to a 10% additional tax. Advisors weigh the rule against monthly proration, age-55 catch-up amounts, employer deposits, and Medicare timing in making Health savings account decisions for Individuals before the firm's year-end client deadline.
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