Understanding the “Last Month Rule” for Health Savings Account (HSA) Contributions
If you're enrolled in a High-Deductible Health Plan (HDHP) and contributing to a Health Savings Account (HSA), the “Last Month Rule” could provide a mechanism to turbocharge your savings, but there are several important considerations to be aware of.
The Last Month Rule allows you to contribute the full annual HSA limit for the year even if you become eligible midyear, as long as you're HSA-eligible on December 1st.
For 2025, the IRS contribution limits are:
$4,300 for individual coverage
$8,550 for family coverage
Plus an additional $1,000 catch-up if you're 55 or older
Let’s say you become eligible for an HSA on July 1st, and that you opt for self-only coverage. Normally, you could only contribute a prorated amount (6/12 of the annual limit). But if you're still HSA-eligible on December 1st, you can contribute the full annual amount under the Last Month Rule.
However, there are some important rules to be aware of before implementing this course of action.
If you take advantage of the Last Month Rule, you must remain HSA-eligible through the end of the following calendar year, in what is known as the “testing period”.
If you lose eligibility (e.g., switch to a non-HDHP, lose coverage altogether, or enroll in Medicare) before the testing period ends, you'll have to:
Repay the extra contributions (the amount above the prorated limit), and
Pay a 10% penalty on that amount (unless the loss was due to disability or death).
Let’s look at an example. Austin, 31, is fresh out of medical school. He recently accepted a new position with a hospital, and his new employer has open enrollment coming up in November with the new benefit year set to begin December 1. Austin determined he would like to participate in a qualifying HDHP through his employer that gives him access to a health savings account. Austin is opting for self-only coverage for the plan year. In Austin’s case, his employer will not be making any contributions into the HSA.
As of December 1, 2025, Austin has qualifying HDHP + HSA coverage. Austin would normally be restricted to only being able to contribute ~$358 for 2025 under the pro-rata rules. However, if Austin commits to maintaining qualifying HDHP, HSA-eligible coverage through December 31, 2026, he is able to make a full $4,300 for the 2025 calendar year.
The Last Month Rule is a powerful tool to maximize HSA contributions, especially for those who become eligible late in the calendar year. If you are confident you can maintain HSA-eligible coverage through the entire next calendar year to avoid penalties, knowing this rule exists can help you potentially invest thousands of extra dollars in a tax-efficient manner that can compound and be pulled out tax-free for qualified healthcare expenses in the future.
Optimizing employer benefits and maximizing tax-efficient planning opportunities, like The Last Month Rule, is something Opulent Wealth does every day for clients. We’d love to be a trusted partner in your financial journey. Reach out to us today to find out more about how we can help you.