What is the last-month rule as it pertains to an HSA?
The last-month rule states that if you are covered by an HSA-eligible health plan on the first day of the last month of a given year, you are considered an eligible individual for the entire year. In turn, you can then contribute to the HSA for that full year.
Example: If you enrolled in the CDHP on July 1, 2022, and retained coverage under that plan through December 1, 2022, you are covered per the last-month rule. This means you are considered an eligible employee for the entire year in 2022. This allows you to contribute up to the 2022 contribution limit. However, you must also take into consideration the testing period. The testing period is a major drawback to the last month rule. It means that you must remain eligible for the HSA until December 31st of the following year. The only exceptions include death or disability.