I recently learned about the "last month rule," which states (IRS Pub. 969, p. 3):
Under the last-month rule, if you are an eligible individual on the first day of the last month of your
tax year (December 1 for most taxpayers), you are considered an eligible individual for the entire year. You are
treated as having the same HDHP coverage for the entire year as you had on the first day of the last month.
I read this to mean (and have now been told) that I can contribute the amounts I missed during Jan. - May. I could do this by check, lump-sum, any time until year-end.
This sounds great, and I'm glad I learned about it. However, it seems that there's a catch, in the form of a "testing period" that requires an employee utilizing this rule to remain eligible to participate in the HSA for the "last month" (for example, December 2017) plus 12 months following (in this example December 2018). This is discussed in the publication.
This presents a risk, since who knows that they'll be eligible (i.e., employed) for 12 months following the "last month"?
Am I understanding this correctly? Has anyone had experience with this rule? Is there someplace I can go to confirm my understanding of this rule?
Thanks, Small Law Survivor