The Money Mustache Community
Learning, Sharing, and Teaching => Ask a Mustachian => Topic started by: yoga mama on July 07, 2015, 08:15:31 AM
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I changed over from another health plan here at work to a HDHP when we changed plan years on July 1. I plan to fund the HSA but I'm wondering if it is legal for me to fully fund it for 2015, even though I will only be enrolled in the HDHP for half of the year? Thanks!
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I believe yes, as long as you are enrolled through
Dec 31 see below.
It is when you are only enrolled, say, Jan 1 - July 1 that you need to prorate. I'll dig for sources.
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Last-month rule. Under the last-month rule, if you are an eligible individual on the first day of the last month of your tax year (December 1 for most taxpayers), you are considered an eligible individual for the entire year. You are treated as having the same HDHP coverage for the entire year as you had on the first day of the last month.
So in a nutshell: yep, you're good!
http://www.irs.gov/publications/p969/ar02.html#en_US_2014_publink1000204045
ETA: Also see the testing rule. They have a good example on the publication too:
Testing period. If contributions were made to your HSA based on you being an eligible individual for the entire year under the last-month rule, you must remain an eligible individual during the testing period. For the last-month rule, the testing period begins with the last month of your tax year and ends on the last day of the 12th month following that month. For example, December 1, 2014, through December 31, 2015.
If you fail to remain an eligible individual during the testing period, other than because of death or becoming disabled, you will have to include in income the total contributions made to your HSA that would not have been made except for the last-month rule. You include this amount in your income in the year in which you fail to be an eligible individual. This amount is also subject to a 10% additional tax. The income and additional tax are shown on Form 8889, Part III.
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Yes, fully funding the HSA is a great idea as long as you plan to have an HDHP through at least the end of next year.
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Great news! Thanks so much for the quotes, expectopatronum!