HSA/FSA eligibility and Last Month Rule

Question

Spouse has had an HSA eligible plan but because I had an non-limited FSA throught my employer we had not been able to contribute to the HSA. Last year we decided to get rid of the FSA, the FSA coverage period was from Dec 1 to Nov 30 so my FSA end date terminated on 11/30/2019. As of 12/01/2019 I no longer had an active FSA; my FSA had a grace period of 90 to submit any prior claims which ended on 2/28/2020. There was a small carry over amount to which I decided to Waive.

To summarize:

1- Spouse HDHP covering all family effective all 2019.

2- Own FSA terminated as of 11/30/2019.

3- FSA had grace period of claims prior to 11/30/2019 until 2/28/2020.

4- FSA had small carry over which was waived.

5 - Wife has no other health Insurance.

6- I have a non HDHP plan through my employer; it only cover me.

From all of this I reach to this two points:

A - Spouse is eligible to contribute to HSA for the month of December 2019 given that she was no longer covered by an FSA starting the 1st of that month.

B- Spouse can use the Last Month Rule to contribute the full family amount.

Assuming A and B are correct above, will full amount contributed using Last Month Rule be fully deductible for tax purposed? Is all of this correct?

Answer 1

I believe you are correct.

Your spouse became an eligible individual on December 1, 2019. Before that, Spouse was ineligible because the FSA counts as “other health coverage.”

Because Spouse’s HDHP covers both herself and at least one other family member, she can contribute at the family contribution level.

Because Spouse was eligible on December 1, she can use the last month rule to contribute the full amount for 2019. If she does use this rule, she is subject to a testing period, which means that she must remain an HSA eligible individual through December 31, 2020, or there will be a penalty to pay. (See this answer for details.)

The full family contribution limit for 2019 is $7000. Normally, this 2019 contribution would need to be made by April 15, 2020, but this year the deadline has been extended along with the tax return deadline to July 15, 2020. The contribution that she sends in with her after-tax money (not sent in by her employer through payroll deduction) will be deductible on her 2019 tax return.