Contributions when Changing to non-HSA Eligible Coverage

This was a reader question submitted by HSA Edge reader Kevin. If you have a question get in touch and we’ll try to help. Email us at any time.

My wife and I began a HSA-eligible policy August 1 of 2016. On January 1, we will switch to a non HSA-eligible plan… and will NOT be eligible to make HSA contributions in 2017 under this plan. If so, does that mean we are ALSO not able to make contributions in 2016 (without failing testing period and paying penalty)? This seems excessive. It would seem reasonable to allow a person to make a pro-rated (5 month) HSA contribution for 2016 in this case. But I cannot find confirmation anywhere that this is allowable.

If I understand you correctly, you have HSA eligible coverage from Aug through Dec of 2016. On January 1st 2017 you are switching to a new plan that is HSA eligible but ACA modifications make it de facto HSA ineligible.

If that is true, you can definitely still contribute to your HSA for 2016 but on a pro rata basis, i.e. proportionate for the months you had coverage. By my count that is 5/12 months so your contribution limits would be:

  • Single coverage = 5/12 * $3,350 = $1,395.83
  • Family coverage = 5/12 * $6,750 = $2,812.50
  • If you are 55 or older add 5/12 * $1,000 = $416.67 to above amounts

Using the Last Month Rule would allow you to contribute the full amount (e.g. $3,350 or $6,750) to the HSA, but as you point out, you would fail the Testing Period next year, resulting in penalties. The key point (that I will make clearer in that article) is the Last Month Rule is optional and if you don’t use it, you can just contribute for those months that you had coverage. Often this is the safest way to play it.


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