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I changed jobs last year. My old company offered an HSA and my new one doesn't. I used my HSA for medical expenses totaling about $700. There is still some money in it, I think. I'm not really sure what happens, if anything, to the HSA when I change jobs. I am trying to use Turbo Tax Online to do my taxes and there is a section about HSA. One of the questions asks: Did you take any money out of your HSA last year? Is the answer to this question "yes" since I used it for medical expenses? It mentions that I would have gotten a 1099-SA form if this situation applied. I don't remember ever receiving this form.

Also, there is a section that has a question: "In 2013 did you make a contribution to your HSA based on the last month rule?" What does this mean?

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The HSA money is yours to keep. You can't add new money into the account and get a tax deduction for the new money, but you can spend the old money on medical expenses.

First log into the website for the HSA and see if you have money left. This can be important because if there is still money left they might be charging you a monthly fee. You should have gotten a letter from the old company or the administrator when you left the High deductible insurance plan. This would have told you your options regarding the spending or transferring of old funds.

HSA related numbers would have appeared on your W2, and you should have a 1099-SA from the administrator. It is likely that there is a copy of the 1099 on the administrators website.

The numbers you enter on the tax forms depends on how much you contributed from your paycheck, how much your company contributed, and how much you sent (if any) from other sources besides payroll deduction. You will also have to know how much money was withdrawn from the HSA and how much was used for medical purposes.

The last month rule is for those people who start in the middle of the year. If you start partway through the year you are allowed to make the maximum contribution if you still have it at the end of the year, and you expect to keep it.

The Last Month Rule

The Last Month Rule states that if you are covered by an HSA eligible health plan on the first day of the last month of a given year, you are considered an eligible individual for the entire year. In turn, you can then contribute to the HSA for that full year.

If you are covered by an HDHP on Dec 1st of a given year, you may contribute the maximum for that year.

For example, you could begin coverage and open up my HSA in November of a given year. Come December 1st, you are covered and per the Last Month Rule, considered an eligible employee for that full year. That allows you to contribute up to that year’s contribution limit, even waiting a few months to make a prior year contribution if you like. Back up the truck and load up the HSA!

However, there is a catch.

The Testing Period

The Testing Period states if you use the Last Month Rule, you must remain an eligible individual (covered by HDHP) for the following 12 months. If you fail to remain an eligible individual (change insurance plans, lose insurance plan, receive other health coverage) any “extra” contributions you made as a result of the Last Month Rule will be taxed and penalized.

If you contribute per the Last Month Rule and end your HDHP insurance within 1 year, you will have to pay tax on any excess contributions you were allowed to make and pay a 10% penalty.

In this case, “excess” contributions are determined by the contribution limit / 12 months, compared to your time eligible.

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