Key takeaways:
Health savings accounts (HSAs) provide special tax advantages that can lower your healthcare costs. In general, you can contribute to an HSA only during the months when you are eligible.
In 2024, the maximum HSA contribution limit is $4,150 for self-only and $8,300 for family coverage. If you are 55 or older, you can contribute an additional $1,000.
You may be eligible to use the last-month rule to make a full contribution even if you are not HSA eligible for the whole year.
The Centers for Medicare & Medicaid Services projects that healthcare expenses will rise 5.6% annually from 2023 to 2032. If you have a high-deductible health plan (HDHP), you may be eligible to reduce your out-of-pocket costs with a health savings account (HSA).
An HSA is a tax-advantaged account that allows you to pay for qualified medical expenses tax free. It comes with annual contribution limits that the Internal Revenue Service (IRS) adjusts every year for inflation. Usually, you can make contributions only during the months you are HSA eligible. But the last-month rule is an exception. This rule lets you make a full-year contribution even if you were HSA eligible for less than the full year.
What is the HSA last-month rule?
The last-month rule requires you to be eligible for an HSA on the first day of the last month of the tax year. For most people, that day is December 1. It does not matter if you were ineligible for any or all of the other months.
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But you have to maintain HSA eligibility for a set period of time after you take advantage of the last-month rule. This is known as the testing period, which runs from December 1 of the year you became eligible through December 31 of the following year.
About the IRS’ last-month rule testing period and penalty
The testing period is a major drawback to the last-month rule. It means you must remain eligible for the HSA until December 31 of the following year. The only exceptions are death or disability.
If you violate the testing period requirement, your ineligible contributions become taxable income. There is also a 10% penalty.
For example, let’s say you have a family plan and take the full-year contribution in December 2024. But then, in August, you become ineligible for the HSA. The amount subject to tax and the penalty is $7,608. This is the full-year contribution of $8,300 minus the $692 eligible contribution for December.
If you meet the last-month-rule requirement, you can make a maximum contribution for the current year. For 2025, the IRS increased the individual contribution limit by $150, to $4,300. Family plans increased by $250 from 2024 to 2025. You can contribute $8,550 in 2025. If you are 55 or older, you can add $1,000 for a catch-up contribution.
Year | Self-only | Family | Catch-up contribution (55 and over) |
|---|---|---|---|
2025 | $4,300 | $8,550 | $1,000 |
2024 | $4,150 | $8,300 | $1,000 |
Source: IRS
Make the most of your health savings account (HSA): Here are some HSA benefits that you can take advantage of this year.
Do you have a high-deductible health plan? Here are some of the pros and cons of an HDHP that you should consider.
HSA vs. flexible spending account (FSA): While HSAs and FSAs both help you pay for qualified expenses, there are a few differences you should consider.
How does the HSA last-month rule help you save money?
The HSA last-month rule allows you to contribute the maximum amount to your HSA. The more money you can contribute, the more money you’ll be able to invest. The growth in your account is tax free and can help you pay for eligible healthcare costs.
Unlike with a flexible spending account (FSA), you do not have to spend all the money in your HSA for the year. The money in your HSA rolls over every year. You can keep the unused funds in your account and invest in stocks, bonds, mutual funds, and exchange-traded funds. An HSA is similar to an individual retirement account or a 401(k).
When you contribute money to your HSA, you can earn the following three tax benefits:
You can deduct after-tax contributions on your tax return or contribute pretax dollars through your company’s payroll process.
Any earnings, interest, or dividends in the HSA grow tax free.
Your HSA can be used to pay for eligible medical expenses without you paying taxes for them.
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According to Fidelity, a 65-year old couple may need $165,000 to cover healthcare expenses throughout retirement. Investing the maximum contributions in an HSA in 2024 and beyond can go a long way. Fidelity estimates that you can accumulate $840,000 in 30 years, assuming a 7% annual return. There are no mandatory withdrawal rules. Your HSA spending is tax free if used for eligible medical expenses.
How do HSA contribution limits work?
The contribution limits are based on your age and coverage. For example: Let’s say you are 60 years old and eligible for an HSA for the full year. Your maximum contribution limit is $5,150 if you have an individual plan in 2024. This includes the $1,000 catch-up contribution. But if your employer pays for part of the contribution, you must exclude that amount from your maximum allowed contribution. Let’s say your employer contributes $1,000. Based on our example, your maximum contribution limit is now $4,150.
What are some examples of contribution limits in action under the last-month rule?
Let’s say you enrolled in your employer’s health insurance plan from January to July. Then you quit your job, took some time off, and started another job in September. You enrolled in a high-deductible health plan and an HSA at your new job. You qualify for the last-month rule since you were enrolled in your HSA on December 1.
What if you enrolled on December 2? Then the last-month rule would not apply.
Here’s another example that shows what happens when your coverage changes. Let’s say you have an individual HDHP policy from January to November. Then you get married and change to a family plan. In this case, you can use the maximum contribution limit for the family plan.
How do you know how many months you were HSA-eligible?
To be eligible for an HSA, you must meet the following requirements:
You have an HDHP.
You are not enrolled in Medicare or another disqualifying health plan.
Someone else cannot claim you as a dependent on their tax return.
Your spouse’s non-HDHP policy does not cover you.
An HDHP policy has higher deductibles than other insurance plans. The IRS requires HDHPs to have minimum deductibles and maximum out-of-pocket costs to qualify for an HSA. This includes deductibles and copayments but not premiums.
Here are the HDHP thresholds for 2024 and 2025:
HDHP Requirements for HSA | 2025 | 2024 |
Minimum deductibles (Self) | $1,650 | $1,600 |
Maximum out-of-pocket costs (Self) | $8,300 | $8,050 |
Minimum deductibles (Family) | $3,300 | $3,200 |
Maximum out-of-pocket costs (Family) | $16,600 | $16,100 |
Source: IRS.
If you meet the requirements, you will be eligible for an HSA on the first day of the following month. You can contribute as long as you remain eligible.
Do HSA contributions have to be prorated?
Unless you use the last-month rule, you will have to prorate your contributions if you become HSA eligible after January 1. For example, let’s say you enroll in an HSA in February. This means you become part of the plan in March. You have qualified coverage for 10 months.
To prorate your contributions, take the contribution limit and multiply it by the eligible months. Then divide this by 12. Here are the prorated contribution amounts for 2024.
Months you are HSA eligible in 2024 | Self-only (under 55) | Self-only (55 and up) | Family (under 55) | Family (55 and over) |
|---|---|---|---|---|
1 | $346 | $429 | $692 | $775 |
2 | $692 | $858 | $1,383 | $1,550 |
3 | $1,038 | $1,288 | $2,075 | $2,325 |
4 | $1,383 | $1,717 | $2,767 | $3,100 |
5 | $1,729 | $2,146 | $3,458 | $3,875 |
6 | $2,075 | $2,575 | $4,150 | $4,650 |
7 | $2,421 | $3,004 | $4,842 | $5,425 |
8 | $2,767 | $3,433 | $5,533 | $6,200 |
9 | $3,113 | $3,863 | $6,225 | $6,975 |
10 | $3,458 | $4,292 | $6,917 | $7,750 |
11 | $3,804 | $4,721 | $7,608 | $8,525 |
12 | $4,150 | $5,150 | $8,300 | $9,300 |
If you have an individual policy, your prorated contribution limit would be $3,458 for 10 months of coverage. If you are 55 or older, you can include the $1,000 catch-up contribution amount in your calculation. The prorated amount would be $4,292.
What happens if you don’t take advantage of the last-month rule?
Nothing happens if you don’t follow the last-month rule. But you can make contributions for the current year by the deadline for your tax return. This is usually April 15.
Filing for an extension on your tax return will not change your deadline to make an HSA contribution. Some states also may not conform to the federal deadline. You should confirm HSA contribution deadlines in your state.
Frequently asked questions
Yes, the pro rata rule applies to HSAs. This lets you prorate your contributions based on the months you are eligible. But the last-month rule allows you to contribute the full year’s amount if you’re eligible on December 1. But you must remain eligible through the following year to avoid penalties.
Yes. As long as you’re eligible to contribute to an HSA and you are within the contribution limits, you can adjust your contributions anytime during the year. Typically, you can do this through your employer’s payroll system. If you have your own HSA, you can do it through your HSA provider.
Yes, you can contribute to your HSA for a partial year. Your contribution will be prorated based on the number of months you were eligible for the HSA. The exception is if you use the last-month rule, which lets you contribute the full year’s amount if you’re eligible on December 1.
Yes, the pro rata rule applies to HSAs. This lets you prorate your contributions based on the months you are eligible. But the last-month rule allows you to contribute the full year’s amount if you’re eligible on December 1. But you must remain eligible through the following year to avoid penalties.
Yes. As long as you’re eligible to contribute to an HSA and you are within the contribution limits, you can adjust your contributions anytime during the year. Typically, you can do this through your employer’s payroll system. If you have your own HSA, you can do it through your HSA provider.
Yes, you can contribute to your HSA for a partial year. Your contribution will be prorated based on the number of months you were eligible for the HSA. The exception is if you use the last-month rule, which lets you contribute the full year’s amount if you’re eligible on December 1.
The bottom line
Generally, you can only contribute to an HSA for the months in which you meet the requirements. For most taxpayers, that means you have to be eligible on the first day of every month in which you want to make a contribution. The last-month rule provides an exception. It allows you to contribute the maximum amount to your HSA even if you did not meet the qualifications for the entire year.
This can help you lower your medical costs and grow your account over the long term.
However, the testing period is a disadvantage. Before using the last-month rule, you need to be confident you will keep your HSA for a certain period of time, or you will be subject to taxes and penalties.
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References
Centers for Medicare & Medicaid Services. (2023). NHE fact sheet.
Internal Revenue Service. (2023). Part III: Administrative, Procedural, and Miscellaneous: Revenue Procedure 2023-23.
Internal Revenue Service. (2023). Publication 969: Health savings accounts and other tax-favored health plans.
Fidelity. (n.d.). How to plan for rising health care costs.
Fidelity. (n.d.). What is an HSA, and how does it work?
