What is the Last-month rule?
The Last-month rule is an IRS provision under Section 223(b)(8) that allows individuals who maintain HSA eligibility on December 1st to contribute the full annual maximum amount to their Health savings account, regardless of how many months they were eligible during that tax year. To avoid tax penalties and recapture provisions, individuals utilizing this rule must maintain HDHP coverage and HSA eligibility through December 31st of the following year (the testing period). Failure to remain eligible triggers income inclusion of contributions that exceed the prorated amount, plus a 10% additional tax on the excess.
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