At a glance, the “last month” or “full-contribution rule” means that if you were to start a new job and get new coverage before December 1, you are able to put a full year’s worth of contributions into your HSA so long as you’re slated to be on an HSA-eligible HDHP for the following year.
Here’s exactly what it says in IRS Publication 969:
“Under the last-month rule, you are considered to be an eligible individual for the entire year if you are an eligible individual on the first day of the last month of your tax year (December 1 for most taxpayers). If you meet these requirements, you are an eligible individual even if your spouse has non-HDHP family coverage, provided your spouse’s coverage doesn’t cover you.”
So, what exactly does this mean in non-government-speak?
If your HSA eligibility begins by December 1 of the current year, you’re considered eligible to max out your contribution all at once. You don’t have to prorate your contributions on a monthly basis because you technically made it in under the deadline of “the first day of the last month.” But they’re strict. If your HDHP coverage doesn’t start until December 2, you’re out of luck.
And of course, there has to be a catch. If you take advantage of the “last month” rule, you have to remain under HDHP coverage until November 30 of the following year. If something happens and your insurance changes or you lose coverage and your HSA eligibility changes, you will face extra taxes and penalties under any contributions you were able to make due to the “last month” rule.
All in all, it’s a chance you might be willing to take if your coverage changes during the year and you’re able to contribute beyond the monthly rate. Learn more about prorated contributions here.