How to calculate 2024 HSA contribution limit for partial year (9 months)

Oh that's really interesting! I hadn't heard about the "last-month rule" before. Since I'm planning to keep this high-deductible plan into 2025 anyway, that sounds like it could work well for me. Just to clarify - if I do use this rule and contribute the full $4,150 for 2024, I'd need to keep an eligible HDHP plan through all of 2025, right? What happens if I unexpectedly need to change plans in, say, October 2025? Would I only pay the penalty on the extra amount above my prorated calculation?

Yes, you would need to maintain HDHP coverage through all of 2025 to satisfy the testing period requirement if you contribute the full amount. If you were to lose eligibility in October 2025, you'd face what's called a "testing period failure." You'd need to include in your 2025 income the amount you contributed above your 2024 prorated amount (so roughly $1,037.50 - the difference between $4,150 and $3,112.50). This amount would be subject to regular income tax PLUS a 10% additional tax penalty. The penalty only applies to that excess portion, not your entire contribution.

Does it also handle FSA calculations? I have both an HSA and a limited-purpose FSA and I'm always confused about how they interact with contribution limits.

That sounds helpful but I'm skeptical about uploading my insurance documents to some random website. Is it secure? How do you know they're not just collecting your personal info?

It handles FSA calculations too! The tool specifically addresses limited-purpose FSAs and how they interact with HSAs. It actually explained that I could still max out both as long as the FSA only covers dental and vision expenses. The site uses bank-level encryption for all documents. I was nervous at first too, but they don't store your documents after analysis - they're deleted immediately after processing. Plus they have a whole section explaining their security measures and privacy policy that made me comfortable using it.

Wait, how does this service actually work? I don't understand how they can get the IRS to call you when I can't even get through myself?

This sounds totally made up. There's no way to "skip the line" with the IRS. They're notoriously understaffed and everyone has to wait. I bet this is just a way to get people to pay for nothing.

The service basically uses technology to navigate the IRS phone system automatically. They use automated systems to call repeatedly and wait on hold for you until they get through to a representative. When an agent is finally reached, they connect them directly to your phone number. It's not "skipping the line" - they're just waiting in it for you. They have some kind of specialized calling system that can stay on hold indefinitely, which is something most of us can't do with our regular phones. The IRS doesn't give them special treatment - they're just better at dealing with the wait times than individuals are.

Thanks for adding that info! I'm not over 55 yet, but that's good to know for future reference. Does anyone know if employer contributions count toward the annual limit? My employer puts in $500 per year ($125 quarterly), so I'm wondering if I should subtract that from whatever my calculated limit is?

Yes, employer contributions absolutely count toward your annual HSA limit. So if your employer contributes $500 for the year, you would need to subtract that from your personal contribution limit. Using your 9-month prorated example, if your limit is $3,112.50 and your employer puts in $500, you can personally contribute up to $2,612.50 for the year. Don't forget to adjust for the quarters you weren't eligible too - if you're getting quarterly contributions of $125 and weren't eligible in Q1, you'd probably only get $375 from your employer for the year.

No, you cannot contribute to your 2025 HSA in 2024. Unlike IRAs (which allow contributions until Tax Day of the following year), HSA contributions must be made within the calendar year they apply to. The only exception is that you can make 2024 HSA contributions until the tax filing deadline in April 2025. But you can't make 2025 contributions until January 1, 2025 at the earliest.

Thanks for clearing that up! I'll make sure to max out my 2024 contribution first, and then wait until January to start on 2025.

Great questions! For the last-month rule, you can definitely switch jobs as long as you maintain HSA-eligible HDHP coverage. The IRS doesn't care about your employer - they only care that you have qualifying high-deductible health plan coverage. So you could switch jobs, go from employer coverage to individual marketplace coverage, etc., as long as the plan meets HDHP requirements. For tax reporting, you don't need to specifically indicate you're using the last-month rule on your return. You just report your total HSA contributions on Form 8889. The IRS assumes you're following the rules properly. However, I'd definitely recommend keeping good records showing your December 1st eligibility and continuous coverage through the testing period, just in case you ever get audited. The tricky part is if you fail the testing period - then you'd need to report the excess contribution as income in the year you lose eligibility, which would be on your 2025 return if you lost coverage sometime in 2025.

This is really solid advice, Aidan! I appreciate the practical breakdown of the financial risk vs. reward. The 32% effective penalty rate really puts it in perspective. I think I'm leaning toward the conservative approach since I'm still relatively new in my current role and the job market has been pretty unpredictable lately. Even though I don't anticipate changing jobs, life has a way of throwing curveballs. The peace of mind of knowing I won't face any penalties might be worth more than the extra tax savings. Plus, as you mentioned, once I have full-year eligibility in 2025 and beyond, I can max out the contributions without any of these complications. Better to build good HSA habits gradually than to risk getting hit with unexpected taxes later!