If I elect the HDHP mid-year, can I still contribute the maximum HSA annual contribution?

Normally, you are permitted to contribute 1/12th of your annual maximum for each FULL month you are covered by the HDHP.  For example if you have single coverage and are covered for 6 of 12 months in the TAX year, you may contribute 6/12ths of the annual maximum of $2900 (in 2008) or $1,450. Some people want to maximize their contribution for the tax year so they contribute more than is permitted under the 1/12th rule.  If you contribute any amount in excess of the 1/12th rule in the tax year you subject your self to what is known as the “Testing Period.”

 The testing period requires you to maintain the HDHP though the entire month of December of the current tax year AND all 12 months of the following tax year. The type of HDHP coverage (single or family) an individual HSA on December 1 governs the amount that a employee is eligible to contribute for the year.  For instance, if you are enrolled in individual coverage on December 1, you may contribute up to $2,900 or if you are enrolled in family coverage, you may contribute up to $5800 to your HSA  If you fail to satisfy the testing period, the additional contributions made under this exception become taxable and subject to an additional 10% penalty tax.


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