Last Month Rule for HSA, optional?

[ljsister2024]

Hi there,

I had a HDHP family plan Jan to March 2024, was laid off and had 2 months gap, had individual HDHP June to December 2024. When calculate 2024 contribution limit, Turbo Tax gives 5188. My question is if last month rule applies here? Can I choose not to use the last month rule?

Question 2, due to gap of HDHP in 2024, the last month rule of 2023 failed, I should return the excess contribution by April 15, but the excess contribution in 2023 will be charged 10% more taxes, which Turbotax already calculated, right?

Thank you,

[BillM223]

#1 Yes, the last-month rule applies to anyone who has HDHP coverage on December 1st of the tax year.

#2 TurboTax should realize that (1) you did not have HDHP coverage for every month of 2024, so when it asks you what type of HDHP coverage you had on December 1, 2023, (2) it will realize that you "failed to maintain HDHP coverage". Next, TurboTax will ask you a lot of questions about your coverage in 2023 and about your contributions, in order to refigure what your annual HSA contribution limit should have been in 2023 without the last-month rule.

However, you don't to do anything special, like withdraw money from your HSA. Instead, TurboTax will figure everything and asses tax and penalties on your 2024 return. This amount will appear on line 18 of the 8889.