Health Savings Account contributions

Maybe I'm missing something, but I think each tax year stands on its own. One's contribution limit for the 2007 tax year depends on eligibility in 2007. I haven't seen anywhere that says a contribution limit for one year depends on what will happen in future years. What's sometimes confusing is that we have until April,

Like Will Rogers, all I know is what I read in the papers, but the IRS papers (Pub 553) are pretty clear (and confirm your interpretation): "[I]f you are not an eligible individual, for any reason other than death or becoming disabled, for the 12 months following the end of your tax year, any contribution attributable to [the months in which you were not eligible] is included in your income and is subject to an additional 10% tax. The income and additional 10% tax are reported for the tax year in which you cease to be an eligible individual."

The HDHP could still be a good option, if you only contribute 7 months worth (since you started on June 1). Then there would be no penalty (assuming you're under the plan through Dec 1 of this year). I also started an HDHP in the middle of this year, am in the same situation, and am considering paying in the max anyway, but for me, the ability to shift income from 2007 to 2008 may be worth the penalty. Worst case for you is that you contribute $5650 * 5/12 $2354 extra this year, you get the reduction of AGI in 2007, it shows up as additional AGI in 2008, plus you pay a $235.42 penalty. Assuming same tax brackets in 2007 and

See above.

Mark Freeland snipped-for-privacy@sbcglobal.net

these months

Thanks for the clarification. It took a while to decipher which months were "these months" in the quote. It was puzzling until I noticed that the penalty applies to somebody eligible for only the last part of 2007 who contributes for all of 2007. I didn't know that was allowed. Since I'm eligible for all of 2007 but will become ineligible during 2008, I'm safe contributing the max for

This is a recent change. It was done to address the problem that if a plan began in the middle of the year (say July), they wouldn't participate. Without this rule change, people who began a plan in July 2007 would have lots of out-of-pocket expenses July - December, but could only contribute half their HSA amount in 2007. With the new rule, they get to contribute a full year's worth up front (same as if you'd begun the plan Jan 1). But the change doesn't come for free. If you start a plan in the middle of the 2007, and contribute a full amount for 2007, you have to stick with the plan until the end of 2008 to avoid penalties for 2007.

That's my understanding. You can also contribute in 2008 for whatever months you are eligible. (Eligibility is determined by whether you qualify on the first of each month.) Mark Freeland snipped-for-privacy@sbcglobal.net

Thanks for confirming my interpretation.

I'm already enrolled and I definitely plan to contribute for at least the the months of this year for which I'm enrolled.

Yep, that's my plan -- I'm definitely not going to make the full contribution for 2007 before next April and at that time I'll have a better idea of whether or not I'm likely to remain in my current job. Thanks again.