Is it legal to open and fund an HSA when not currently enrolled in a high deductible health plan?

Thanks for the clear explanation. Quick question though - what if I enroll in an HDHP for just December 2023? I heard there's some rule called the "last month rule" or something that might let me contribute the full amount even if I'm only covered for one month. Is that true?

That's a good question about the "last-month rule" (also called the full-contribution rule). You're correct that this rule exists, but it would only apply if you were covered by an HDHP on December 1st of 2023, which has already passed. The rule allows someone who is eligible on the first day of the last month of their tax year (December 1 for most people) to contribute the full annual amount, regardless of how many months they were actually eligible. However, there's a testing period - you must remain eligible for HSA contributions for the entire following year (all of 2024 in this case). If you don't maintain HDHP coverage during that testing period, you'd have to include the excess contribution in your income and pay an additional 10% tax.

Does it really work with specific situations? My spouse and I are both on separate plans (mine is an HDHP, hers isn't) and I can never figure out how much I'm allowed to contribute.

I'm skeptical about any tax tool that claims to have all the answers. Does it actually cite the specific tax code sections? And can it handle weird edge cases like mid-year plan changes or family coverage vs individual?

Yes, it absolutely works with specific situations like yours where spouses have different plans. You just answer questions about each person's coverage type and it determines your family contribution limit based on your particular mix of plans. The tool definitely cites specific tax code sections and IRS publications. That's actually what I liked most about it - every answer comes with the exact reference so you can verify it yourself. And it definitely handles those edge cases like mid-year plan changes, marriage/divorce situations, and the differences between family and individual coverage limits.

How does this actually work? Is it some kind of premium IRS service I haven't heard about? Seems too good to be true that you can just pay to skip the line when I've been on hold for 2+ hours multiple times.

This sounds like a scam. The IRS doesn't have a "front of the line" pass you can buy. And even if you do get through, the agents often give incorrect information anyway. I'd rather just read the actual tax code or IRS publications than trust a random phone agent.

It's not a premium IRS service - what they do is use an automated system that continuously calls the IRS for you using their business line which typically has shorter wait times. When they get through, they connect the call to you. It's basically like having someone wait on hold for you. You're right to be cautious about the information you receive from IRS agents. That's why I actually read through IRS Publication 969 first so I had a base understanding of HSA rules. The agent was able to clarify my specific situation, but I wouldn't rely solely on phone advice without verifying in official publications. Always good to get multiple sources of information for important tax decisions.

I actually hadn't thought about the FSA option! Does it provide the same tax advantages as an HSA? And what happens to any FSA funds when we transition to the HDHP with an HSA in 2025?

FSAs do provide a similar tax advantage by allowing pre-tax contributions that reduce your AGI, similar to an HSA. However, they typically have much lower contribution limits (usually around $3,050 for 2023) compared to HSA limits ($7,750 for family coverage). Regarding your second question, FSA funds generally need to be used by the end of your plan year, though some employers offer either a grace period (usually 2.5 months) or a carryover option (usually $610 maximum). If you don't use the funds within these timeframes, you forfeit them - that's the big downside compared to HSAs. When you transition to an HDHP with HSA in 2025, you'll need to either spend down your FSA funds before the new plan year or see if your employer offers that limited purpose FSA I mentioned that can coexist with an HSA.

This is great advice! When I had my second child last year it counted as a qualifying life event and I was able to switch from a PPO to an HDHP mid-year. Started contributing to my HSA right away for the remaining months.