Not Too Late

Mike Zaccardi

HEALTH SAVINGS accounts are frequently praised on HumbleDollar—with good reason. A lesser-known benefit: Health savings accounts, or HSAs, can be a boon for new employees, thanks to the last-month rule.

What’s that? If you have a qualifying high deductible health plan (HDHP) as of Dec. 1, you’re eligible to make a full-year HSA contribution, even if you only just bought an HDHP. On top of that, if you continue HDHP coverage, you can make a full HSA contribution for the following year. The downside: You have to keep qualifying coverage for the next year or you could trigger taxes and penalties on the HSA contributions made under the last-month rule.

I took advantage of the last-month rule when I swapped from a contract job to a permanent role in 2013. Since then, I’ve made it a goal to always contribute up to the annual HSA maximum. With some decent stock market returns, my HSA has swelled to more than $50,000. My plan is to let the account grow over the decades and then reimburse myself when I’m a healthy old man (knock on wood).

Since first opening an HSA, the only major health-related expense I’ve incurred was an elective $3,300 Lasik procedure in 2018. I planned ahead and paid with a 2% cashback credit card, while leaving my HSA untapped. Fear not: I paid off my hefty credit card balance in full later that month.

Another tip: If you can, it’s best to contribute to an HSA through your employer’s payroll system. That way, you can avoid that pesky 7.65% payroll tax. An added bonus: Many employers match an employee’s HSA contributions.

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