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Aaron Benway - Headshot

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What-to-Know-About-HSAs-and-Taxes

Open Enrollment

Paired with a High Deductible Health Plan, HSAs can provide a medical “emergency savings” fund and even complement your retirement savings strategy. 

The HSA Tune-Up: 5 Insider Tips

HSA Employer Contribution

HSA Account Rules

Employee Benefits

Health Insurance

Personal Finance

CDHP (Consumer Driven Health Plan)

CFP®, EA

Aaron is a Certified Financial Planner (CFP) and IRS Enrolled Agent (EA).  He co-founded HSA Coach, a digital tool to educate consumers on HSAs, track health expenses and other documents, and provide individual financial calculators, to help consumers get the most from their HSA and other savings.  To help individuals directly with their financial planning and wealth management requirements he founded AB Financial Planning.  Prior to co-founding HSA Coach, Aaron was the CFO of ventured backed fintech startup HelloWallet, acquired by Morningstar.  Aaron has an MBA from Harvard Business School and is a graduate of the US Naval Academy.

Aaron Benway

Perhaps the only decisions more personal than health decisions are the financial ones - How much should I save?  Where should I save? Where can I find help if I need it?  These are big questions and deserve attention. 

HSA Funds: Spend, Save or Invest?

Health insurance is the most valued of employee benefits.  Studies find we will even consider switching jobs for better coverage.  But despite our priority on health insurance, do we really understand what we are buying?  Generally, no.

Selecting Health Insurance While Taking a Longer View

Open enrollment is here. Your choices create a financial wellness generator capable of building long-term security for you and your family. 

Am I OK, Will I Be OK? Open Enrollment Series

A Health Savings Account, or HSA, may be one of the most versatile and tax-efficient savings accounts available.  Designed to be paired with a qualifying High Deductible Health Plans (“HDHPs”), the HSA is a supplemental retirement account.

How to approach an HSA: Contributions, Savings & Investments

HSA Investment

Financial Health

Your employer is likely offering other supplemental and/or elective products during benefit selection season. Here is an overview.

How to Select Other Employer Programs During Open Enrollment

Benefits

Some of you might have heard of a “Section 125 Cafeteria Plan.” You may have a stronger interest in how the Section 125 plan interacts with an HSA.

How Your Section 125 Cafeteria Plan Interacts with Your HSA

Section 125 Plan

January means a start of the year, a closure to the old and the welcoming of new.  However, somewhere between spring flowers and summer vacation planning lies an annual household chore: Taxes.

What to Know About HSAs and Taxes

Retirement Planning

One of the mainstays of employer benefits packages, the 401(k) and its cousin, the 403(b), are this generation of employees’ retirement workhorses.

How much should I contribute to my 401(k)?

You may not realize your Health Savings Account (“HSA”) is also a tool for long-term savings. Your HSA can also be part of your overall wealth portfolio.

How to Invest Your HSA

Employer Health Insurance

HSA (Health Savings Account)

HSA Tax Forms

<p>Some of you might have heard of a “Cafeteria Plan.”&nbsp; A smaller number may have even heard the term “<a href="https://livelyme.com/section-125-plan/">Section 125</a>.”&nbsp; However, most HSA owners have never really needed to know these terms, much less the underlying mechanics governing the employer benefits programs it created.&nbsp; Still, for a minority, including those serving in a company benefits role or as a benefits consultant, you may have a stronger interest in how the Section 125 plan interacts with an HSA.&nbsp; Here, we will explain.</p>
<p></p>
<h2>IRS rules/regs (Section 125 Cafeteria Plan) &#8211; (as they relate to HSAs)</h2>
<p>First, some background.&nbsp; A “Cafeteria Plan” is a written plan sponsored by an employer whereby “participants may choose among two or more benefits consisting of cash and qualified benefits,” hence the term “cafeteria” in describing the options available to employees.&nbsp; Importantly, the value of these options are excluded from gross income of employees and therefore not taxable to the individual, one of the reasons for their popularity.</p>
<p>While employers face <a href="https://livelyme.com/smb-owners-can-i-contribute-to-an-hsa/">certain restrictions</a> to make sure the economic benefits of these plans do not discriminate in favor of highly compensated employees or key employees, that has not limited their rise in popularity.&nbsp; One of the more notable restrictions is on their use in deferred compensation arrangements.&nbsp; Essentially employers are prohibited from using Section 125 plans to defer compensation, though even here there are a few notable exceptions, including HSAs.</p>
<p>What does this mean?&nbsp; Well, recall that for both Section 125 benefits and Health Savings Accounts there are <a href="https://livelyme.com/what-are-the-benefits-of-an-health-savings-account/">significant tax savings available</a>.&nbsp; Not only are qualified benefits meeting program requirements exempt from gross income, and therefore income tax, they are also excluded from payroll tax by your employer.&nbsp; Payroll tax is another 15.3%, split evenly between the employer and employee at 7.65%.&nbsp; Generally speaking the most popular way employers achieve this goal is through program administration in a Section 125 plan.</p>
<p>So while not the only way for an employer to make contributions into an individual’s HSA – money that is then owned by the employee and cannot be retrieved by the employer – the Section 125 plan is the most common as these plans are well established, providing an existing set of rules an HR department can plug the HSA contributions into (both employer and employee, if elected).</p>
<p>As with most topics tax and qualified benefits-related, there are more rules and details, as well as HSA funding options.&nbsp; However, for most HSA owners understand that a Section 125 plan is not only compatible with an HSA, it is likely the mechanism “behind the scenes” enabling your contributions to remain pre-payroll tax, a nice little benefit indeed.</p>

<p>A Health Savings Account, or HSA, may be one of the most versatile and tax-efficient savings accounts available.&nbsp; Designed to be paired with a qualifying <a href="https://livelyme.com/what-is-a-high-deductible-health-plan-hdhp/">High Deductible Health Plans</a> (“HDHPs”), the HSA takes the tax advantages of familiar Flexible Savings Accounts (FSA’s) and adds a number of new features that turn this health-oriented savings accounts into something far greater – a supplemental retirement account.</p>
<p></p>
<h2>Basic Overview, for Newer HSA Users</h2>
<p>A word on HDHPs.&nbsp; Before getting too far ahead, keep in mind HSAs are a <a href="https://livelyme.com/hsa-eligibility-details/">necessary component</a> to the healthcare industry’s migration to High Deductible Health Plans.&nbsp; HDHPs work similarly to many other health insurance plans with a few notable exceptions, with the most important for this post being the addition of what is essentially a “self-insurance” component.&nbsp; This is achieved through the increase in the out-of-pocket deductible, a threshold established by the IRS that “qualifies” the plan as acceptable for HSA entry.</p>
<p>This increased minimum feature also comes with a max out-of-pocket level, essentially capping an individual’s financial exposure in a given year.&nbsp; While still a large number, roughly twice the annual maximum HSA contribution level, this provides a useful target when incorporating HSAs into broad financial planning.&nbsp; This max out-of-pocket can be thought of as a similar concept to property and casualty insurance, where some risk is maintained up to a certain amount, while the remainder, generally the truly catastrophic, is transferred.</p>
<h4>HSA Contributions, Savings and Investments: A beginner tutorial</h4>
<p>While a full discussion of HSAs within the broader context of financial planning is beyond the scope of this post, a few principles are worth keeping in mind while learning to use your HSA and obtaining the most from the account.</p>
<h4>Contributions</h4>
<p>Generally speaking HDHP participants should make monthly contributions to take maximum advantage of any HSA funding match offered by their employer, as well as establish a minimum level of savings equal to the minimum annual deductible.&nbsp; For 2018 this amount is $1,350 for individuals and $2,700 for families.&nbsp; HSAs are tax-free dollars when used to pay for qualified health expenses, not only income tax-free but also payroll tax-free, so these funds really can be the most financially efficient way to pay for healthcare.</p>
<p>Also know that <a href="https://livelyme.com/comparing-the-hsa-to-the-fsa/">unlike FSAs</a>, HSA contributions do not expire each year and are portable from employer to employer.&nbsp; These accounts are “owned” by the taxpayer and therefore that individual has full rights and benefits independent of employment status.&nbsp; Similarly, HSA funds can roll to your heirs when you pass, so similar to other financial accounts the money is never lost.&nbsp; For these reasons and more individuals should not fear “over-saving” with their HSA contributions.</p>
<h4>Savings</h4>
<p>One area new users – as well as old users – often want guidance on is how much to place into an HSAs savings account, and consequently how much to invest through the brokerage feature.&nbsp; While this question can easily surface other aspects to financial planning such as risk appetite, excess monthly cash flow, other account balances and total wealth picture, among many, a useful rule of thumb is to keep the minimum annual deductible in the “cash” savings account and consider investing some portion of the remainder.&nbsp; More conservative savers may wish to increase this cash savings amount to the annual max out of pocket limit.</p>
<p>A variation on this theme may be to further divide the savings funds into general-purpose medical expenses and a second for identified upcoming qualified expenses, like braces, knee replacement or other health care costs that can be scheduled and are identifiable.&nbsp; Knowing the money is available, and more broadly that you have an established plan, can provide a peace of mind beyond the actual account balance.&nbsp; Don’t underestimate the value.</p>
<h4>Investments</h4>
<p>Most of “the action” in HSAs seems to center around the brokerage, or investment feature.&nbsp; This is understandable, as health care costs continue to expand at a rate greater than inflation, while in addition more of the costs are being shifted onto the individual through not only a noticeable increase in premiums, but also less noticeable co-pays and deductibles.&nbsp; A similar dynamic is waiting for employees once they retire and participate in Medicare.</p>
<p>HSA investments allow the user to access many, if not most, of the same types of investment features as their employer-sponsored retirement plan and/or IRA accounts.&nbsp; Stocks, bonds, money market and other funds can be invested in to achieve similar short and long term wealth and life objectives.&nbsp; Importantly, and as noted above, an HSA never expires, nor do qualified health expenses lose their “tax-exempt” status regarding HSA withdrawals.</p>
<p>Practically speaking, then, an HSA can be a very good, perhaps the best way, to save for out-of-pocket health expenses in retirement.&nbsp; While health risk and corresponding financial exposure can be hard to gage decades into the future, a number of large institutions, such as Fidelity, have estimated it to be well over <a href="https://www.cnbc.com/2017/11/24/health-care-costs-in-retirement-can-top-275000.html">$275,000 for a couple retiring today</a>.</p>
<p>The best, if not only reliable way, for individuals and families to meet this level of financial responsibility is to consistently save month after month, year after year, and allow compound interest within an equity-oriented portfolio to work it’s <a href="https://livelyme.com/calculator/">Time Value of Money</a> magic.&nbsp; Importantly, once a holder reaches 65, funds can be withdrawn penalty-free for any use, though ordinary income tax rates will apply (similar to traditional IRAs and qualified retirement plans like 401(k)s and 403(b)s)</p>
<p>While there is much more to an HSA, account holders should know that the HSA is more than the FSA they might have grown up with.&nbsp; An HSA is a product best thought of as a financial risk mitigation account specifically geared towards health risk, but more flexible.</p>
<p>Here’s to HSA saving and investing!</p>

<p>Perhaps the only decisions more personal than health decisions are the financial ones &#8211; How much should I save?&nbsp; Where should I save? Where can I find help if I need it?&nbsp; These are big questions and deserve attention.&nbsp; Your choices create options after only a few years and become life-altering over a career.</p>
<p></p>
<h2>HSA Savings and Spending Strategy</h2>
<p><a href="https://livelyme.com/what-is-an-hsa/">Health Savings Accounts</a> (HSAs) have recently arrived on the scene as part of this broad financial puzzle.&nbsp; Connecting both health and wealth, HSAs serve double-duty in your financial planning, as HSAs allow you to save money on today’s qualified medical expenses while also providing the option to save for long-term healthcare costs.&nbsp; HSAs also provide additional flexibility by allowing withdrawals for non-qualified health expenses (penalty-free after age 65).&nbsp; Account holders need not worry about their funds becoming “trapped” in a health-only savings account.</p>
<p>Even still, it is natural to wonder whether and how much of one’s HSA should go towards retirement.&nbsp; Below we will outline a few concepts to help with your decision.</p>
<p>Keep in mind, however, these are still only general principles. &nbsp;Consider seeking the guidance of a competent financial advisor, such as a CFP certificant, who can evaluate your current situation and provide specific recommendations to help you achieve your goals.</p>
<p>Some financial planning questions to consider, with a “cheat sheet” at the very end:</p>
<ol>
<li><strong>Do you have an emergency savings fund?</strong> Before maximizing your HSA, a more important and versatile account for many will be your “rainy day” fund for emergencies.&nbsp; A common rule of thumb is 3-6 months of salary savings in a readily accessible account to cover job dislocations, medical emergencies and other of those blessedly infrequent life crises that require a large cash outlay.</li>
<li><strong>Have you saved the annual plan deductible in your HSA?</strong> Many plans require a certain cash balance minimum before accessing the brokerage feature (although not with Lively). Knowing your plan’s out of pocket deductible in cash can provide a peace of mind that is probably worth more than any foregone market gains.</li>
<li><strong>Are there identified health expenses in the near to medium term?</strong> Often, particularly as we get older, we begin to plan for bigger medical procedures.&nbsp; If this is you, or could be you, consider saving funds in your HSA and make appropriate allocations to adjust for the timing of your anticipated expenses.&nbsp; As an example, you may want to keep a larger amount in cash or short-term securities offered through the brokerage feature for known upcoming expenses.</li>
<li><strong>Do I intend to log medical expenses? </strong>Chances are we will all pick up medical expenses for “bumps and scrapes” over the years.&nbsp;&nbsp; As these dollars are eligible “withdrawal IOUs,” account holders should keep track of these receipts to make the most of their account growth.&nbsp; If not you could potentially risk overlooking the tax-deferred and perhaps tax-free advantages these expenses create by “shoe-boxing” your receipts for withdrawal at a later date.&nbsp; If you log your medical expenses and intend to keep those amounts invested in the market, consider a heavier equity orientation.</li>
<li><strong>Does my employer offer contribution matching with the retirement savings plan and I am taking full advantage of it? </strong>Generally speaking, employees should take full advantage of their employer’s retirement savings match – free money still beats “tax-free.”&nbsp; If you aren’t already taking full advantage of your employer’s retirement savings plan match dollars then you should probably use an appropriate budget allowance to grab this free money before maxing out your HSA contribuion.</li>
<li><strong>Do I need the money as part of my daily living expenses? Can I afford to not spend from my HSA?</strong>&nbsp; While this is not a general-purpose financial planning post, the fact is all your accounts ultimately roll into one large account – you.&nbsp; As a result, and as you can read elsewhere, generally your best financial move is to pay off outstanding credit card and other high interest consumer debt.&nbsp; If you need to spend your HSA funds to make room in your budget to pay your revolving line of credit from your credit card, then you should consider doing so.&nbsp; Few will recommend you pay 25% short-term interest for the opportunity to earn a market return over time.</li>
<li><strong>Am I healthy and expect to be healthy through retirement?</strong> As mentioned above, an HSA can be used not only for tax-free withdrawals for qualified medical expenses at any point after the HSA has been established, HSA funds can also be used for non-medical expenses (note – a penalty applies if used in this way before age 65).&nbsp; Because of this account feature, an HSA is also a very good way to supplement your retirement savings plan through another tax-deferred, and quite possibly tax-free, savings account.&nbsp; Even if you expect to remain healthy your entire life and rarely use the medical system, HSA investing could still be a very good financial planning strategy.</li>
</ol>
<p>Saving versus <a href="https://livelyme.com/employer-features/invest/">investing in an HSA</a> is often part of a broader set of financial planning decisions.&nbsp; While the HSA provides account holders a great way to save tax-free for both near-term and far-off health expenses, and even allows for tax-deferred savings for non-medical expenses (again, withdrawal penalty goes away at age 65), do not overlook other legs to your “financial wellness” stool.</p>
<p>For those looking for the “quick” answer, we (<a href="https://hsacoach.com/">HSA Coach</a>) generally recommend as follows:</p>
<ol>
<li>Keep the annual deductible in the cash/checking account of the HSA. Consider increasing your savings balance to the maximum annual out of pocket of your annual insurance plan if you more risk-averse.</li>
<li>Invest the rest in the brokerage feature and consider “mirroring” the portfolio of your 401(k), assuming this is allocated based on your age, goals and risk profile.</li>
<li>If you can pay out of pocket for health expenses, keep the HSA funds invested in the market and maintain a record of your health costs for future, tax-free withdrawal.</li>
</ol>

<p>January means a start of the year, a closure to the old and the welcoming of new.  However, somewhere between spring flowers and summer vacation planning lies an annual household chore: Taxes.</p>
<p></p>
<h2>HSAs and Taxes</h2>
<p>Even if this snuck up on you, likely your employer, banks and retirement savings providers, to name a few, have already started distributing end of year tax forms.  Include on that list of those sending inbound communications your <a href="https://livelyme.com/hsa-tax-form-check-list/">HSA provider</a>, as they will be providing  IRS Forms 1099-SA and 5498-SA for contributions and withdrawals.</p>
<p>As these and other tax forms start arriving in your mailbox and inbox and sending you into a (positive?) tax state of mind, here are five things to keep in mind when it comes to taxes and your HSA:</p>
<ol>
<li><em><strong>The HSA may be the “best” tax savings vehicle the government has (ever?) created</strong>.</em> Ok, the federal government may have offered a better savings account at some point, but compared with today’s alternatives the HSA is hard to beat.  Remember the “triple tax savings” of HSAs, namely pre-tax deposits* (income and payroll), tax-deferred growth and tax-free withdrawals for qualified medical expenses.</li>
</ol>
<p>By comparison, your traditional IRA or employer-sponsored 401(k)/403(b) is a “tax-deferred” account, meaning while you receive an income tax deduction today, you pay taxes later.  Unlike these popular retirement savings accounts, however, you must be enrolled in an HSA-qualified High Deductible Health Plan to make new contributions to your HSA.</p>
<p>[<strong>Note</strong> – remember, funds deposited in your HSA can continue to grow through dividends, interest and market appreciation, as long as they remain in the account.  Your HSA never expires, see below, and the funds are never forfeited as many FSA programs require at year end.]</p>
<ol start="2">
<li><em><strong>HSA record keeping</strong>.</em> Compared with your IRA and 401(k), your HSA requires more documentation.  As noted above, contributions and withdrawals are reported using IRS Forms 1099-SA and 5498-SA.  However, taxpayers are responsible for maintaining “adequate documentation” on their medical expenses.  Should HSA withdrawals be used for purposes other than qualified medical expenses – again, an acceptable and totally appropriate use (albeit lacking the same tax-free benefits of qualified expenses), under the right circumstances &#8211; any taxes and potential penalties (&lt;65 years of age) due are captured under the “other income” line on your Form 1040.</li>
</ol>
<p>This creates an administrative task – part of the inspiration for our app, HSA Coach – while allowing savers the opportunity to grow their balances through #3…</p>
<ol start="3">
<li><em><strong>Your HSA funds and incurred medical expenses never expire</strong>.</em> Recall qualified medical expenses may be withdrawn from an HSA at any point.  Said differently, an expense you pay out of pocket is an indefinite “IOU” against HSA funds.  You choose when you want to withdraw money, whether this is at point of sale, at the end of the year, or even decades later.</li>
</ol>
<p>Further, qualified medical expenses include not only your personal expenses, but also those of your spouse and other tax dependents.  Expenses also can include travel to medical appointments, lodging and meals, and a host of other medically necessary items (see IRS <a href="https://www.irs.gov/publications/p502">pub 502</a>).</p>
<p>As many know, the total family health bill can add up quickly.  Which leads to the following…</p>
<ol start="4">
<li><em><strong>Maximize your tax savings by</strong> <strong><a href="https://livelyme.com/how-to-invest-your-hsa/">Investing your HSA</a></strong>. </em>Because this IOU is yours forever, a good way for “patient” investors to maximize the tax benefit growth is by pursuing a “buy and hold” strategy with their investment accounts (pun intended).  This works even better for HSAs as the money you choose not to withdraw can generate growth and pay for additional future medical expenses.</li>
<li><em><strong>Your HSA is a “Health 401(k),” only better – flexible, tax-free withdrawals</strong>.</em> As noted above, your IRA and 401(k) can be very useful retirement savings tools.  Without question retirement savings accumulation through payroll, deposits is a “killer app” in automating consumer behavior.  However, the tax bill will come due. For traditional retirement accounts this may even happen on the government’s own schedule – part of what is known in the financial advice industry knows as Required Minimum Distributions or RMDs.</li>
</ol>
<p>However, HSAs withdrawals are not only tax-free for qualified medical expenses, both current and long ago historic, the funds can be withdrawn at your choosing, as mentioned above.  Retirement and financial planning experts may also note RMD rules do not apply to HSAs, providing additional wealth management flexibility.</p>
<ol start="6">
<li><strong><em>Bonus –HSA’s transfer tax-free to a spouse or estate asset for others</em></strong>. To repeat here, your HSA money never expires.  While few of us outside of trust and estate lawyers like to dwell on estate planning, it should bring some comfort to know that all your saving and investing can benefit your heirs when you pass away.  For your spouse, this means the HSA remains an HSA: tax-free withdrawals for qualified medical expenses.  For all others this becomes an estate asset, transferring as other tax-preferred savings but losing its status as an HSA.  Your tax advisor can describe the mechanism and what it could mean for your estate.</li>
</ol>

<p>In two previous posts we discussed the “big” elections during open enrollment – <a href="https://livelyme.com/selecting-health-insurance-taking-longer-view/#more-4066">health care</a> and <a href="https://livelyme.com/401k-contributions/">retirement savings</a>.  While these consume the most pre-tax payroll dollars – and therefore employee mindshare - your employer is likely offering other supplemental and/or elective products during benefit selection season.</p>

<p></p>

<h2>Benefits Selections Beyond Healthcare</h2>

<p>Below we discuss a few of the more common ones, and how to consider them in the context of your family’s broader approach to financial wellness.</p>

<h3><p><strong>Vision/Dental insurance.</strong></p></h3>  
  
<p>Let’s face it, we all like feeling secure. Employers and the benefits brokers they hire know this and over the years employees have come to expect insurance coverage options for more than just healthcare.  However, if you look underneath the covers of vision and dental “insurance” programs, you may find they begin to look like what they truly are: prepayment programs.</p>

<p>Kind of like the Sears layaway programs of yesteryear, our vision, and dental insurance premiums essentially pre-pay on services coordinated through an intermediary. Unlike how our parents may have purchased before the age of credit cards, sometimes we forget and never use what we’ve already paid for.  How many of us consistently visit the dentist chair twice a year for dental cleanings?</p>

<p>Shop around, however, and you might find purchasing vision checkups and dental cleaning directly from your local optometrist and dentist can save you money.  Many of these specialties, like medical general practitioners, are converting to cash-only, no-insurance practices, so you might find you are better prepared for the ongoing retail shift in healthcare.</p>

<p>Of course, if your employer offers dental and vision programs at no cost then consider yourself lucky.  On the other hand, if premiums will be deducted each pay period for these elective programs, determine how much you would pay by purchasing the services directly.  You might find you could save money by skipping this employer-sponsored benefit.</p>

<h3><p><strong>Short and Long Term Disability.</strong></p></h3>
  
<p>Many employers offer disability insurance, and often standard with larger employers.  Disability insurance tends to be fairly inexpensive at the group level and can provide a critical income stream should you need a longer leave of absence due to illness or injury.</p>

<p>Whether provided as an employer benefit or purchased on the market directly, most financial planners recommend both short-term and long-term disability, with a minimum coverage of 60-70 percent of your salary. Be sure to understand whether the policy is for “own” occupation or “any” occupation, as these provide clues as to what type of insurance you are receiving. In general, and particularly for highly skilled professionals such as surgeons and orthodontists, you will want “own” occupation insurance. Other features to look for are the elimination period (essentially time required before benefits begin), length of the benefit period, renewability and residual benefit provision.</p>

<p>Keep in mind if your employer is paying the premium for disability insurance or you pay the premium with pre-tax dollars, any insurance benefits you receive as a result of a disability claim will be taxable to you.  Likewise, if you pay for the benefits using after-tax dollars any benefits received will be tax-free. Most financial planners would recommend paying for disability insurance with after-tax dollars if only to avoid the additional financial strain of paying taxes on a reduced income stream when you are unable to work.</p>

<p>Disability insurance tends to be forgotten about right until you need it.  As someone with first-hand experience, the benefit of the right disability insurance product cannot be overstated. Talk with your HR department about the specifics of your program and consider doing some additional research.  You may want additional coverage.</p>

<p><h3><strong>Group Life Insurance and Supplemental Life Insurance.</strong></h3></p>

<p>Large employers typically provide group term life insurance as part of benefits packages.  Because premium payments are a form of employee compensation, the IRS assesses taxes on the value of the insurance; you may have even noticed tax withholding on your end of year W-2 from your employer.</p>

<p>While you shouldn’t turn down a “free” benefit – aside from the taxes you pay on the value - keep in mind your employer owns the policy. Ask yourself these questions:</p>

<ol>
  <li>Is my employer-sponsored group term life insurance enough?</li>
  <li>What happens to my life insurance policy if I leave my employer?</li>
</ol>

<p>Group term insurance coverage levels are variable from employer to employer, though not uncommon to find employers will offer term policies equal to your base salary.  Others may offer a multiple of your salary up to a cap.  Financial planners have a number of methods to determine appropriate coverage levels specific to the individual and family, but by far the simplest is a (very) rough rule of thumb: 10x salary.</p>

<p>Which brings us to the question of whether you purchase additional insurance, and from whom. Many benefits plans feature additional, supplemental life insurance protection to employees for additional costs deducted from their pay.  This may or may not be a competitive price depending on your insurability in the open market.</p>

<p>If you are <a href="https://livelyme.com/should-you-consider-using-a-health-savings-account/">young, healthy</a> and perhaps willing to have a medical examination performed to qualify you for the “ultra-premium” life insurance rates, you may find much better value than what is available through your employer. On the other hand, if you have a documented medical condition that makes life insurance expensive on the open market, you may discover group insurance is a much better option, as evidence of insurability is not required. Either way, you should call for quotes before purchasing supplemental life insurance through your employer to better understand what is available and at what pricing levels.</p>

<p>The other aspect of employer-sponsored group term insurance is convertibility into “whole” or permanent, cash value insurance at the time of separation.  This can be particularly useful as the conversion is based on age and, once again, does not require evidence of insurability.</p>

<p>As with disability insurance, life insurance can be a complex topic, with as many variables to consider as there are products available!  Before purchasing additional insurance do some homework and consider meeting with a financial advisor, such as a Certified Financial Planner (CFP), either someone available through your employer or on your own, who will discuss your specific situation and present options.</p>

<p><a href="https://livelyme.com/comparing-health-insurance-plans/">Health insurance</a> is the most valued of <a href="https://livelyme.com/the-cost-of-no-hsa/">employee benefits</a>.  Studies find we will even consider switching jobs for better coverage.  But despite our priority on health insurance, do we really understand what we are buying?  Generally, no.</p>
<p></p>
<h2>Health Insurance Selection</h2>
<p>Health insurance selection may be one of the most expensive, confusing benefit decisions we make, and one of the most important.  Employers increasingly support open enrollment periods with materials and decision tools, yet by design are only solving today’s problem.  With limited information and a narrow mandate, employers cannot take the broader, longer view to encompass employee health, wealth and goals.</p>
<p>In this post we’ll tell you what to look for when selecting health insurance, as well as how to consider today’s health plan options with more in mind.</p>
<p><strong>What to look for:</strong></p>
<ol>
<li><em>In/Out of Network Coverage. </em>Which doctors, hospital networks and other service providers are provided by your plan?  Do you have out of network options?  Do your current providers participate in the plan you are considering?  Health care providers periodically reassess insurance participation by carrier and plan, so you may need to call your provider directly to find out whether they do and will continue to participate.  Be sure to confirm the providers you want participate with next year’s options.</li>
<li><em>No cost services.</em> Many health plans offer free access to preventative care like annual wellness visits, immunizations, screening services and more.  The specific options may vary year to year, so consider reviewing even if you intend to keep your current option.  And for goodness sakes, use the “free” services.  You are (indirectly) paying for them.</li>
<li><em>Prescription drug plans.</em> Of all the recent cost increases in health care, prescription drugs receive perhaps the most attention.  Health insurance providers and employers are understandably seeking to limit double-digit inflation in drug costs. As a result, if you are on long-term medications make sure your particular drug is included in the coverage list, called the drug formulary.  Depending on your plan specifics you may unknowingly be adding costs to next year’s total health care bill.</li>
<li><em>Monthly premiums, deductibles, co-pays</em>. Most of us focus on monthly premiums, but this can be deceiving.  Actual costs will depend on a number of variables, including frequency and types of usage.  Fortunately, many employers offer decision calculators to help explain some of these details, and provide examples.  Even so, estimating future health care costs is an inexact science.  Use these calculators for guidance, but as they say in advertisements, “actual results may vary.”</li>
<li><em>Access to HSAs, including employer incentive contributions.</em> While nearly all plans have similar sounding features, one of the biggest variables nowadays is whether the plan is an “HSA-qualified” High Deductible Health Plan (HDHP).  The health insurance industry has improved nomenclature in the last few years, so identifying which options qualify for access to an HSA is easier.  Even still, be sure to confirm with your HR department which plan enables HSA contributions.  Furthermore, many employers will make contributions to plans as well to entice employee participation.  Ask your employer if they offer incentives.</li>
</ol>
<p><strong>What to consider:</strong></p>
<ol>
<li>Y<em>our personal health history. </em>Only you will know what combination of health care providers and networks work best for your situation.  You may have a trusted relationship you wish to maintain, in which case that may be a priority over costs.  Others may want a certain medication and prescription drug brand to be covered.  Most of us, however, tend to use the health care system inconsistently and not retain our records when we do.  As a result we have less “data” to guide our decisions.</li>
<li><em>Expected future costs, short-term and long-term.</em> Similar to your history, do you expect significant costs next year or perhaps five years down the road?  Family planning and elective surgeries can heavily influence the choice of plan.  If you are uncertain and generally use the system infrequently, then you should consider less expensive monthly premiums of HSA-qualified plans, while redirecting a portion of the monthly savings into the HSA. HSAs will enable you to <a href="https://livelyme.com/how-to-pay-for-healthcare-costs/">save for healthcare expenses</a> from year to year, as well as far off into the future, and can be part of a broader financial plan.</li>
<li><em>Total asset picture.</em> An accident or illness could generate thousands of dollars in expenses.  Do you have other financial assets?  Do you have an emergency savings fund established?  Most health insurance plans have maximum out-of-pocket costs that will cap your total liability for unseen expenses, you will want to review other sources of cash, like a checking account, emergency savings accounts, investment brokerage accounts or other funds for these unplanned events.  When it comes to insurance of all types (home, auto, life, health, etc.), a higher total asset base provides flexibility in choosing a higher deductible/lower premium plan to save on premiums.</li>
<li><em>Spouse coverage options.</em> Look at other options available to you through your spouse or significant other.  Often family plans cost less than two individual plans.  Many employers make individual plans free but charge for individual plus spouse, or otherwise assess a fee if the spouse is eligible for coverage through their employer.  Check plan details and coverage options. You may collectively decide one has better plan options and is worth the additional expense.</li>
<li><em>Healthcare engagement</em>. How much do you like to shop around?  Are you open to new providers and experiences in your health care network?  Is “becoming healthy” on your prospective New Year’s resolution list?  Some plans and networks are better suited to “consumerism” than others.  In addition, while the costs of healthcare continue to skyrocket, other consumer choices have emerged, like direct purchasing of X-rays, MRIs and blood testing, often times from the same labs contracted by your health insurance provider.  These consumer-friendly prices may even be better than what is available in network, in which case you should take that into consideration when looking at the total costs.</li>
</ol>
<p>While the healthcare system can feel confusing, open enrollment can be a perfect time to reflect on what health care insurance products you are purchasing and why.  The path to becoming a better health care consumer is knowledge.  Be sure to take that first step.</p>

<p>One of the mainstays of employer benefits packages, the 401(k) and its cousin, the 403(b), are this generation of employees’ retirement workhorses.  Updated by Congress under the Pension Protection Act of 2006 (“PPA”), employers can opt you into the plan, initiate automatic deposits from your payroll and even increase the percentage over time, all in your best interest.</p>
<p></p>
<p>Before becoming alarmed, you can always opt out.  However, before rushing to do so consider “out of sight, out of mind” is a very powerful behavioral tool.  Used appropriately, employees can accumulate large, sometimes very large, balances over the course of a career, feeling nearly effortless along the way.  Acknowledging this, the PPA created new guardrails to help protect both employees and employers, boosting this retirement program.</p>
<h4>How much should you contribute?</h4>
<p>Many employers, and most large ones, offer employee contribution matching, essentially “free” money to the employee.  All employees have to do is contribute some of their own.  Many programs offer what’s known as a “dollar for dollar” match up to some maximum, meaning for every $1 an employee contributes, an employer will deposit the same.</p>
<p>Good financial planning suggests employees should contribute <em><u>at least</u></em> up to the maximum match.  For example, if an employer offers a dollar for dollar match up to 3% of your salary, and you make $80,000 per year, your employer will deposit up to $2,400 into your 401(k) alongside your corresponding contributions.</p>
<p>Rarely is money free, but in this case it is, provided you invest your own dollars as well.  You should do this up to your maximum match level if your financial situation allows.</p>
<p>Sometimes these amounts have <a href="https://www.irs.gov/retirement-plans/plan-participant-employee/retirement-topics-vesting">vesting schedules</a>, meaning if you terminate employment your employer can remove the unvested portion of their deposits in your account.  Employers do this to encourage you to stay with them.   Other employers have a “Safe Harbor” plan where they automatically deposit a percentage into your account without any contributions from employees.</p>
<h4>Contribute Beyond Your Employer Match?</h4>
<p>After maximizing your “free” money &#8211; courtesy of your employer match contribution or Safe Harbor plan &#8211; now you have another decision:  Should you contribute beyond the maximum match level, potentially up annual contribution limit ($18,500 for 2018)?  Or should you direct the next dollars elsewhere?</p>
<p>The answer depends on a number of variables, some of which only you can answer.  However, many financial planners encourage clients to consider making the next pre-tax contributions to their <a href="https://livelyme.com/hsas-and-retirement/">Health Savings Account (HSA)</a>.</p>
<p>The reasons are as follows:</p>
<ol>
<li><strong><em>Tax-free vs. Tax-deferral</em></strong>. While you really can’t do better than “free” money, the next best is “tax-free.”  Keep in mind the 401(k)/403(b) simply delays your tax bill, but does not actually eliminate it.  HSA contributions, on the other hand, are tax-free, provided you use the funds for medical expenses.</li>
<li><strong><em>Payroll tax</em></strong>. HSA deposits are <a href="https://livelyme.com/what-are-the-benefits-of-an-health-savings-account/">pre-payroll tax</a>, meaning there is another 7.65% savings for both you and your employer (15.3% total) for your contributions.  Retirement savings programs are pre-income tax, but not pre-payroll tax.  To compare, a $3,000 contribution to your HSA could save you another $229.50 in payroll taxes, an amount you would otherwise pay were you to deposit into your 401(k).</li>
<li><strong><em>Medical inflation</em></strong>. Unfortunately <a href="https://livelyme.com/healthcare-retirement-costs/">health care costs continue to escalate</a>, both near term and long term, retirement-related out of pocket projections.  Traditionally the recommended savings approach for long-term goals is through participation in the stock market, as the returns over time generally outpace inflation.  HSAs with brokerage features allow savers to harness higher returns from the market.</li>
</ol>
<p>Consider the <a href="https://livelyme.com/hsa-a-secret-retirement-weapon/">HSA as a medical 401(k)</a>.  With out-of-pocket health care costs taking up to 1/3 of social security payments, <a href="http://crr.bc.edu/wp-content/uploads/2017/10/wp_2017-13.pdf">according to a recent study</a>, planning for this portion of your future cash outlays can be wise.</p>
<h4>Investment Alternatives beyond the HSA</h4>
<p><strong><em>IRA</em></strong>.  In addition to HSA options, savers could also look to investing in an Individual Retirement Arrangement (IRA) as an alternative to investing in their employer’s 401(k).  While contribution limits are significantly lower ($5,500 in 2018), you may want the flexibility of choosing your own provider and potentially lower fees options.</p>
<p><strong><em>Roth IRA</em></strong>.  Similar to an IRA, a Roth IRA allows savers to deposit after-tax dollars in exchange for tax-free withdrawals.  This is particularly useful for wage earners who are in lower income tax brackets today and expect to be in higher income tax brackets at retirement.  Note not all taxpayers may be eligible, as Roth contribution requirements include maximum income limits over which taxpayers may not contribute.  For 2018 those income phase-out limits start at $120,000 (single) and $189,000 (married filing jointly).</p>
<p><strong><em>Non-tax deferred brokerage</em></strong>.  Beyond the tax deferred savings programs, savers could also consider a traditional brokerage account for their long-term goals.  One of the disadvantages to the retirement savings programs (Roth exception) is withdrawals are taxed at ordinary income rates, regardless of type of gain inside the account (dividends, long term capital gains, etc.).  In practice this means account growth largely due to stock price appreciation would turn what would be 15% or perhaps 20% long term capital gains rates to income rates of 28, 33% or even 39.6%, so double what the tax payer might have otherwise paid.</p>
<p>As an alternative, many funds and ETFs are very tax efficient and create minimal taxes for their owners who follow and “buy and hold” investment strategy.  When the owners do eventually sell most, if not nearly all of the gains, would be characterized as long-term capital gains.  For some investors this could cut their tax bill by 50% or more.</p>
<h4>Nothing Wrong With Maximizing Your 401(k) beyond the Match</h4>
<p>The downside to each of those other alternatives is they require an additional step, often more.  One of the most powerful features of the 401(k) is the ease of use – set it and forget it (for decades).  Contributing to your employer’s retirement program can be the single most important long-term financial decision for many.  So while other programs offer flexibility, few offer the convenience of establishing and reviewing once a year.</p>
<p><strong>Happy Saving.</strong></p>

<p>Open enrollment is here! While many see the annual ritual of reviewing current health coverage and studying upcoming benefit changes as yet another chore, multiple research studies, backed up by <a href="https://www.nobelprize.org/nobel_prizes/economic-sciences/laureates/2017/thaler-interview.html">behavioral theory</a>, suggest something larger is at work. Your choices create a financial wellness generator capable of building long-term security for you and your family.</p>

<p></p>

<p>Even so, distracted by the fine print we often miss the big picture:</p>

<center><p><strong>Am I on the right path? Will I have what I need, when I need it?</strong></p></center>

<p>The information brochures, web decision tools and HR sessions contain clues to these questions. What they cannot do, however, is answer them.</p>

<p>As the employer benefits industry knows, financial wellness is more than your retirement plan. Medical and dental insurance, personal budgeting tools, supplemental life and disability insurance, and voluntary programs too numerous to list all play a role in your financial wellbeing.</p>

<p>But what combination and coverage levels are best for you?</p>

<p>Even among financial planners and advisors, money professionals consumers often look to in answering these questions, responses vary.</p>

<p>Furthermore, limited resources leave employers unable to provide individually tailored financial planning as one more benefit. Coupled with the legal exposure of providing financial advice and the potential bias of financial services companies, employers stop short of pulling it all together.</p>

<p>Make no mistake, employees are being asked to do more, as are consumers overall (my <a href="https://medium.com/@adbenway/are-companies-asking-you-to-do-more-work-yes-144db33e3be7">book review of “Shadow Work: The Unpaid, Unseen Jobs that Fill Your Day</a>). Gone are retirement pensions and no fee, no deductible health plans, and other “free” benefits old timers like to remember. In its place are more, and many ways more important, choices. Not participating is not an option. As the saying goes, “not choosing is a choice.”</p>

Am I OK, Will I Be OK? - Open Enrollment Series

<p>You may not realize your Health Savings Account (“HSA”) is also a tool for long-term savings.  With access to traditional wealth-building assets like stocks and bonds, mutual funds and ETFs, your HSA can also be part of your <a href="https://livelyme.com/hsa-a-secret-retirement-weapon/">retirement strategy</a> and overall wealth portfolio.</p>
<p></p>

<h2>HSA Investment Options</h2>

<p>Of the many benefits HSAs offer, the brokerage feature may be the most valuable when properly used.  Fortunately, consumer access to brokerages has increased over the years as many HSA providers offer brokerage accounts, <a href="https://corporate1.morningstar.com/ResearchLibrary/article/813893/2017-health-savings-account-landscape/">though their fees and details have invited criticism as of late</a>.</p>

<p>Even still, many feature similar investment options as your 401(k) and IRA.  Familiar mutual funds, ETFs, and money market accounts, as well as individual stocks and bonds, amongst many choices, can all be found in HSA plans.</p>

<h3>Just because you can, should you?</h3>

<p>By now you’ve probably heard the news on health expense projections &#8211; already high, estimates continue to grow higher still. As <a href="https://www.ebri.org/pdf/notespdf/EBRI_Notes_Hlth-Svgs.v38no1_31Jan17.pdf">EBRI found in their 2017 study</a> a couple with median prescription drug expenses would need $165,000 for a 50% chance of covering their retirement healthcare expenses but would need $265,000 for a 90% chance of accomplishing the same. These are large, even daunting sums, but time and a <a href="http://www.morningstar.com/content/morningstarcom/en_us/model-portfolios.html">balanced portfolio</a> make them attainable for many consumers.</p>

<p>However, before jumping to accumulate large brokerage balances, stop to consider how you are currently using your HSA account and why. Are you withdrawing funds periodically to pay for the higher deductibles and co-pays? Do you want the flexibility to do so?</p>

<p>If you answered “yes” or even a tentative “maybe” to either of these questions, then be sure to keep some of your HSA in the checking feature.</p>

<p>While there are no time-tested HSA financial planning thumbrules, most individuals and families would probably benefit from keeping at least the health insurance plan’s annual deductible. For those more risk-averse, consider saving the plan’s maximum out-of-pocket limit, typically 2-3x higher than the minimum deductible. For some, this could be $10,000 or more. Further, keep in mind your plan deductible is likely to change each year, and go up over longer periods.</p>

<p>Once you have found a situation-appropriate amount saved – consider employing the help of a financial planner who can assist with this and more – now the truly wealth building opportunities await.</p>

<h3>Security types, short-term vs long-term, things to look out for</h3>

<p>While a brief post cannot address the broad spectrum of financial planning, below are a few thoughts to consider before investing in your brokerage accounts:</p>

<ul>
  <li><strong>Short term vs long term.</strong> As the HSA usage questions above underscored, account usage will (and should) help frame your time period and therefore the type and mixture of individual brokerage assets.
  <li><strong>Long-term.</strong> In general, stocks and stock groupings like mutual funds and ETFs are more volatile (prices fluctuate) than other options, but in exchange offer higher market returns when held over longer periods of time, generally 7-10 years.</li>
  <li><strong>Short term.</strong> On the other end of the time spectrum, short-term is generally 12 months or less. For cash needs within this time period investors tend to favor cash and cash-like holdings sure a short-term notes and money market accounts.</li>
  <li><strong>Medium term.</strong> Finally, situated between the two, a Goldilocks “not too hot and not too cold” is the period of great than a year but less than seven years.  Bonds and other fixed-income securities are thought most appropriate given the risk/return tradeoff.</li>
</ul>

<p>Of course, most people will want a combination that reflects their specific financial situation and intended healthcare usage.  Also important to recognize that other financial assets, like checking, savings, and non-HSA investment portfolios, can be a financial shock absorber to pay for unexpected health costs without necessarily having to withdraw funds from the portfolio.</p>

<h3>Stocks and bonds, mutual funds and ETFs, (oh my!)</h3> 

<p>As a general rule individual assets like stocks and bonds are probably best left to professionals to help manage to achieve your specific goals.  More friendly to the non-professionals, mutual funds, and ETFs represent a collection, often hundreds if not more, of individual assets which researchers and financial experts agree to provide better values to the individual consumer.</p>

Risk-reward, a term commonly used in portfolio management, is a measure by which investors are “rewarded” for the specific risk implicit in their investments. By spreading the “risk” across lots and lots of individual stocks and bonds, investors tend to generate higher returns while at the same time reducing the chances of a single asset compromising their portfolio.

<h3>HSAs and a total wealth picture.</h3>

<p>With <a href="http://www.mercurynews.com/2016/10/23/while-obamacare-premiums-rise-employer-based-health-plans-shift-to-higher-deductibles/">High Deductible Health Plans increasingly common</a> and as a result HSA usage growing in importance, consumer familiarity will grow.  However, HSAs are still only a portion of the total financial picture.  By taking a broader view of your other assets (401(k), IRA, outsite brokerage, real estate, etc.) as well as your current and future cash flow (income minus anticipated expenses), you will not only be more informed on how to best use your HSA, including the brokerage features, but also appropriately integrate and balance your other wealth building assets.  Time can be your greatest ally when accumulating wealth, so if you suspect you may not be on the right course make it a priority to address.  See additional resources below. </p>
  
<h3>Taxes.</h3>

<p>Often an afterthought in the financial services arena, HSAs highlight the role of taxes on real world, cold, hard cash.  What you can spend is what the IRS allows you to keep.  HSAs enable account holders to withdraw funds tax-free when used for qualified health expenses; all other uses are subject to the same ordinary income tax as 401(k) and IRA withdrawals (10% up to 39.6%), in addition to any early withdrawal penalties.  If you are unsure of your tax planning consult a tax professional.  Decisions today could save you thousands of dollars each year down the road.</p>

<h3>Additional Resources.</h3> 

<p>While software and technology continue to address elements of financial planning, portfolio management, and tax planning, the rules and regulations are broad and change periodically. Often savers and investors would benefit from independent, expert counsel. If you feel this could be you check your local listing of financial planners and tax prepares and schedule a consult.  At a minimum, you will learn what options are available. Also consider visiting your local library (or Amazon), which can provide more than foundational knowledge to all the topics important to your financial wellbeing.</p>

<p>New to your Health Savings Account (HSA)?&nbsp; Familiar with the HSA basics but far from an expert?&nbsp; Considering open enrollment options and evaluating an HSA-qualified health insurance plan?</p>
<p></p>
<h2>HSA Tips</h2>
<p>Whatever your circumstances and financial goals, as <a href="http://www.mercurynews.com/2016/10/23/while-obamacare-premiums-rise-employer-based-health-plans-shift-to-higher-deductibles/">more of us participate in High Deductible Health Plans</a> (HDHPs) we could benefit from greater HSA knowledge and overall financial wellness.&nbsp; Paired with a High Deductible Health Plan, HSAs can provide a medical “emergency savings” fund and even complement your retirement savings strategy.</p>
<p>To help you make the most of your HSA consider these five “insider” tips:</p>
<ol>
<li><strong>Rollovers and Transfers – HSA consumer choice</strong>. Do you know you can select your own HSA provider?&nbsp; While most first-time HSA owners create their account with the HSA contracted by their employer, many consumers prefer the features and services of other HSA vendors.&nbsp; Indeed, much the way banks compete for your business, so too is the HSA market beginning to compete for your HSA account.&nbsp; The IRS makes it easy for HSA owners to<a href="https://livelyme.com/hsa-rollovers-transfers/"> transfer their balances</a>.</li>
</ol>
<p><em>IRS Rules</em>.&nbsp; Like an IRA, the IRS allows you to move balances between HSA providers at your convenience.&nbsp; If you move money through trustee-to-trustee transfers, similar to moving money between two checking accounts of different financial institutions, there are no transfer frequency limits.&nbsp; On the other hand, if you take a distribution from an HSA directly to fund another HSA, known as a “rollover,” the IRS limits to once every year.</p>
<p><em>Best practice</em> – allow the institutions to transfer the money between them rather than you receiving the money directly.</p>
<ol start="2">
<li><a href="https://livelyme.com/transferring-ira-money-hsa/"><strong>IRA to HSA transfer</strong></a>. Would you like to kick-start your HSA?&nbsp; The IRS allows a one-time funding of your HSA from a traditional IRA or Roth IRA contributions.&nbsp; Called a “qualified HSA funding distribution” you are only allowed to do this once during your lifetime.&nbsp; Further, you may only contribute an amount equal to your annual funding limit (individual/family), inclusive of any other HSA contributions you may have made for that tax year.</li>
</ol>
<p><em>Why might you do this?</em>&nbsp; HSA withdrawals for medical expenses are tax free, whereas traditional IRA withdrawals are taxed at ordinary income, independent of how the funds will be used.&nbsp; Particularly when done early and invested over a long period of time, re-characterizing some of your IRA funds as HSA funds can allow you to save a significant amount on your taxes for future medical expense withdrawals.</p>
<ol start="3">
<li><strong>55-year old catch-up contributions</strong>. In addition to annual contribution limits, if you are 55 or older you can make <a href="https://livelyme.com/hsa-catch-up-contributions/">an additional $1,000 contribution to your HSA</a>.&nbsp; Importantly, if you have a family plan and both spouses qualify they must each direct their catch-up contributions to individually owned HSAs.&nbsp; Married couples that are each 55 or older cannot combine their respective contributions into a single HSA.</li>
<li><strong>Beneficiary designation and survivor benefits</strong>. You probably know your HSA balance does not expire at the end of the year the way Flexible Spending Accounts (FSAs) do.&nbsp; But do you know what happens to your HSA when you pass?&nbsp; One of two things:
<ol>
<li><em>Spouse as designated beneficiary</em>. If your spouse is the designated beneficiary at your death the HSA retains its character as an HSA and simply transfers to their custody.&nbsp; The surviving spouse may continue to make tax-free withdrawals for qualified medical expenses.</li>
<li><em>Spouse not designated beneficiary</em>. If a spouse is not the designated beneficiary the account stops being an HSA.&nbsp; The fair market value of the account becomes taxable to the estate or beneficiary, known in the tax world as an IRD asset.&nbsp; The beneficiary is allowed 12 months to pay for qualified medical expenses for the decedent from the HSA, however.</li>
</ol>
</li>
</ol>
<p><em>Best practice</em> – if you are married make your spouse the designated beneficiary and allow them to continue accessing all the HSA tax advantages and account growth potential should you pass away.</p>
<ol start="5">
<li><strong>Retirement Savings – HSAs and your Wealth Portfolio</strong>. Many HSA providers include brokerage accounts as an additional feature.&nbsp; HSA owners may direct their savings into long term-oriented investments, similar to those found in employer-sponsored retirement savings plans (e.g. 401(k)) or individual retirement arrangements (IRAs).&nbsp; With the projected costs of retirement healthcare costs continue to rise, <a href="https://livelyme.com/hsa-a-secret-retirement-weapon/">HSAs can be a very tax-efficient addition to your long-term savings strategy</a>.</li>
</ol>
<p><em>Best practice</em> – once you reach your annual health insurance deductible in your HSA consider directing additional HSA contributions into the brokerage account.&nbsp; Many HSA experts suggest HSA owners “mirror” their 401(k) portfolio line-up as an easy default strategy for consumers.</p>
<ol start="6">
<li><strong>Bonus Tip – Delayed Qualified Expense Withdrawals, or Receipt “Shoe-boxing.” </strong>&nbsp;The IRS does not require HSA owners to take withdrawals upon incurring a qualified expense.&nbsp; In fact, the IRS says distributions may be taken “at any time.”&nbsp; Because of this delayed withdrawal opportunity, HSA industry experts suggest a health expense “shoe-boxing” strategy for those who want to maximize the growth potential of their HSA.&nbsp; A qualified medical expense is essentially an “IOU” against HSA funds, and therefore an HSA investor with a long-term hold period may prefer to keep the balance invested over a decade or more rather than taking periodic withdrawals.</li>
</ol>
<p><em>Example</em> – Suppose you incur a $2,000 medical expense after you have established your HSA.&nbsp; Provided you have a sufficient balance you can take a withdrawal tax-free at any point equal this qualified expense.&nbsp; However, were you to keep the receipt and allow the $2,000 to remain invested you could see the balance grow to a multiple of that amount over time.&nbsp; So while the $2,000 could double to $4,000 over the next decade (hypothetical, but roughly average historic equity return), you could later withdraw $2,000 for the then old expense and still have an additional $2,000 of market growth left in the account.&nbsp; This remaining balance is also eligible for tax-free withdrawals when made for qualified medical expenses.</p>
<p>Whether you are just starting out, or have been using HSAs for years but unfamiliar with the many features, knowing your HSAs options and making the most of its benefits can save you money both today and far off into the future.&nbsp; Happy saving and investing.</p>

To lower your healthcare costs you enroll in a high-deductible health plan (HDHP). That's because HDHPs have lower insurance premiums (but higher deductibles).

Since HDHPs have higher deductibles, you can help keep your healthcare costs low by using preventive care and a medical savings account (known as an HSA).

1. Most HDHPs cover preventive care (like a physical exam) with zero out-of-pocket. So keeping up with preventive care is a smart way to avoid costly illnesses (and to feel good!).

2. You can continue to lower your healthcare costs by using a health savings account. In fact, a high-deductible health plan works best in combination with a health savings account.

Read this guide if you want to learn how to use a tax-advantaged health savings account (HSA) to pay for qualified medical expenses, save money, and lower your taxes.

<h2>Who should read this</h2>

This material applies to individuals & families that want to lower their healthcare costs and be financially effective with their high-deductible health plan (HDHP).

It’s important that you learn about HSAs if you have (or plan to enroll in) an HDHP. It will help you save big.

If you’re in the process of enrolling in an HDHP then choose a plan that is compatible with an HSA. The IRS defines an HDHP as having:

- $1,350 minimum annual deductible for self-only health care coverage and $2,700 for family coverage (both unchanged from 2018)

- $6,750 maximum for self-only health care coverage (a $100 increase from 2018), and $13,500 for family coverage (a $200 increase from 2018)

Jump to:

- [Health Plan Terms](#health-plan-terms)
- [Definition of an HSA](#definition)
- [HSA vs FSA](#hsa-vs-fsa)
- [HSA vs PPO](#hsa-vs-ppo)
- [Benefits of an HSA account](#benefits)
- [How to qualify for an HSA account](#how-to-qualify)
- [How to maximize your savings](#how-to-maximize)
- [How to use your HSA funds](#how-to-use)
- [How to open an account account](#how-to-open)
- [Frequently asked questions](#faq)

<h2 id="health-plan-terms">Some Health Plan Terms</h2>

Before we move forward, let’s define a few terms you’ll come across when shopping for health plans. If you know these feel free to skip to the next section.

- Deductible: This is what you pay upfront for your medical care before your insurer’s coverage kicks in. Once you meet your deductible your insurer covers a large part of the bill. It resets every year.

- Premium: This is what you pay every month to the insurance company to have health insurance whether you use it or not.

- Copay: Predetermined rate you pay to access healthcare services. With your plan, you could have to pay $20 every time you go to the doctor’s office or a $10 copay for your monthly medication.

- Coinsurance: Once you meet your deductible, your health insurer takes up the bulk of your medical bills. But not all of it. Your co-insurance is the percentage of a medical bill you pay for after you meet your deductible. For instance, with a 25% coinsurance, you would pay 25% of each medical bill, and your health insurance provider will cover the remaining 75%.

- Out-of-pocket limit: But you can’t just keep paying for your healthcare, otherwise in a bad health year even with the best plan you would become bankrupt. Your out of pocket limit is the absolute maximum you would need to pay for your healthcare in a year before your health provider covers 100% of the bill.

<h2 id="definition">What is an HSA?</h2>
Health care costs for Americans have been skyrocketing. And an HSA can help you (and your family) plan for and beat the rising costs.

So what exactly is an HSA?

A Health Savings Account (HSA) is an easy and smart way to pay for qualified medical expenses for you and your dependents. With its tax-advantages, easy access to savings, and future growth potential it’s an effective savings vehicle that provides benefits today and in the future.

You can [open an HSA easily and in only a few minutes with Lively](https://livelyme.com/). Then you can contribute to your account (which is FDIC insured) with pre-tax dollars. As a result, you’ll lower your income tax (which is a significant tax benefit).

Using your HSA funds is also easy. We cover it below in the ‘[How to use your HSA funds](https://paper.dropbox.com/doc/2019-Guide-to-HSA--AR5sdUz22mf7__AoRI1xvIORAg-EtPIRt4gBzgxqKMnnuDyY#:uid=463786104738843322001399&h2=How-to-use-your-HSA-funds)’ section.

<h2 id="hsa-vs-fsa">HSA vs FSA</h2>

Health savings account versus a flexible spending account

FSA stands for flexible spending account. It’s an account your employer makes available to you so you can pay for medical expenses with pre-tax dollars.

With both an HSA and an FSA, you can pay for out-of-pocket medical expenses—like copays, medical bills, and vision expenses—while __lowering your taxable income.__

But an FSA is different than an HSA. Read our HSA vs FSA blog post to find out which account is better for you.

<h2 id="hsa-vs-ppo">HSA vs PPO</h2>

It's not a choice between an HSA plan and a PPO plan.

__An HSA account helps you save for medical expenses. It’s not a form of health insurance.__

__A PPO, on the other hand, is a form of health insurance.__ PPO stands for Preferred Provider Organization and refers to the type of network you can access for healthcare.

PPO plans are traditional plans that tend to have lower deductibles and higher premiums. Other healthcare plans like a health maintenance organization (HMO) have lower premiums and low or almost no deductibles, but you have a smaller choice of providers.

The question isn’t whether an HSA is better than a PPO. The question is do you want a high-deductible plan, or do you want a low deductible plan? And if you opt for a high-deductible plan then you’ll be financially efficient if you also enroll in a health savings account.

Our [HSA vs PPO blog post](https://livelyme.com/hsa-vs-ppo/) helps you decide if a PPO or an HDHP + an HSA is right for you.

<h2 id="benefits">Benefits of an HSA account</h2>

An HSA is like a supercharged IRA. It’s approved by the Internal Revenue Service (IRS). And it’s great for your federal tax and state tax returns.

That’s because your HSA contributions are tax-deductible from your income tax, __meaning you can lower your tax burden.__

An HSA offers triple tax savings:

- Pre-tax or tax-deductible contributions
- Tax-free interest and investment earnings
- Tax-free distributions, when used for qualified medical expenses

HSAs are also portable. This means that you always keep your HSA. This is true even if you change employers or stop working. Unlike a [Flexible Spending Account (FSA)](https://livelyme.com/hsas-vs-fsas/), there is no “use-it-or-lose-it” rule with HSAs. If you don’t use funds, they remain in your HSA each year. They also continue to earn tax-free interest.

So take control of your healthcare costs and plan for your future by [opening an HSA](https://livelyme.com/).

__1. Save more for your health__

Contributions to an HSA are tax deductible. Paying with these funds means you’ll pay less for health expenses.

__2. Health safety net__

Rollover your HSA funds from year to year. Unlike a flexible spending account, your contributions don’t have to be used within the year.

__3. Put your money to work__

From day 1, you can establish an investment account using your HSA contributions, with a variety of mutual funds to choose from.

__4. The 401(k) of healthcare__

After age 65 you can use your HSA money for non-health related expenses and just pay income taxes on your withdrawals. No penalty!

<h2 id="how-to-qualify">Qualifying for an HSA account</h2>

To qualify for an HSA you need to a health insurance plan known as an HDHP.

High-deductible health plans have lower premiums and higher deductibles. And to qualify for an HSA,the HDHP must satisfy certain IRS requirements with respect to deductibles and out-of-pocket expenses.

Based on 2019 IRS specifications, qualifying HSA health plans must have minimum deductibles of $1,350 for individuals and $2,700 for families. In addition, qualifying plans must have maximum out-of-pocket amounts of less than $6,750 for individuals and $13,500 for families.

With an HDHP, you generally pay more up front for medical expenses before the plan begins to pay for covered services. In return, you will generally pay less in premiums than in other medical plan options. Otherwise, an HSA-eligible health plan is much like a traditional health care plan.

For more information on if you qualify for an HSA check out [IRS publication 969](https://www.irs.gov/forms-pubs/about-publication-969%5d).

__Not sure if you qualify? Use our free calculator__

Lively created the industry’s first [HSA eligibility calculator](https://livelyme.com/signup-eligibility/). It algorithmically calculates hundreds of HSA contributions scenarios to show you exactly how much you can contribute. You can see it live here.

<h2 id="how-to-maximize">Maximizing your savings (2019 contribution limits)</h2>

To take full advantage of tax savings and to build a reserve for the future, it is suggested that you make the maximum contribution as set by the IRS. So there are HSA contribution limits? Yes.

For those of you who want the quick answer: the HSA contribution limits for 2019 are __$3500 for an individual__ and __$7000 for a family__. If you are 55 or older your catch-up contributions are limited to an __extra $1000 a year__.

Read our [2019 HSA Contribution Limits](https://livelyme.com/2019-and-2018-hsa-contribution-limits/) blog post for a complete look at contribution limits and to learn how to maximize your savings.

<h2 id="how-to-use">How to use your HSA funds</h2>

You can use your HSA funds as you would the funds in your bank account: with your debit card.

After you enroll in an HSA, Lively sends you a branded debit card.

The catch is you can only use HSA money for qualified medical expenses. These costs generally include payment to doctors or dentists, over-the-counter [prescription](https://www.nerdwallet.com/blog/health/2014/03/24/cheap-prescriptions/) drugs, imaging such as MRIs, medical services (such as home care) and medical equipment or supplies.

With a Lively HSA, you can also reimburse yourself for any qualified medical expenses that your insurance didn’t cover and you had to pay out-of-pocket.

Lively created a [free-to-use search engine](https://livelyme.com/whats-eligible/) to find out if what you want to buy is a qualified medical expense. You can also visit [HSA Store](https://hsastore.com/?a_aid=59ee38ee1506b&a_bid=87383ed8&utm_source=Lively&utm_medium=TPA+Portal+EL+List&utm_campaign=TPA+Partner) to find and purchase thousands of eligible expenses.

Q) Can an HSA be used for glasses?

A) Yes, as long as the sunglasses have prescription lenses and were not bought over-the-counter.

Q) Can an HSA be used for dental?

A) You can include in medical expenses the amounts you pay for the prevention and alleviation of dental disease. Preventive treatment includes the services of a dental hygienist or dentist for such procedures as teeth cleaning, the application of sealants, and fluoride treatments to prevent tooth decay. Treatment to alleviate dental disease include services of a dentist for procedures such as X-rays, fillings, braces, extractions, dentures, and other dental ailments.

<h2 id="how-to-open">How to open an account</h2>

Open and FDIC-insured health savings account in minutes with Lively.

Lively brings HSA into the modern era so it’s easier for you to keep healthcare costs low today and plan for the costs of tomorrow.

__1. Why Lively HSA__
<iframe title="Why Lively HSA?" width="640" height="360" src="https://www.youtube.com/embed/6Yx8YS3wQ2o?feature=oembed" frameborder="0" allow="accelerometer; autoplay; encrypted-media; gyroscope; picture-in-picture" allowfullscreen></iframe>

__2. How to easily open an HSA__
<iframe title="Setup HSA Account Tutorial 💵 How to set up a Health Savings Account with Lively" width="640" height="360" src="https://www.youtube.com/embed/jysGYakLFQ8?feature=oembed" frameborder="0" allow="accelerometer; autoplay; encrypted-media; gyroscope; picture-in-picture" allowfullscreen></iframe>

<h2 id="faq">Frequently asked questions</h2>

Q) Is an HSA also health insurance?

A) No, it isn’t. Health insurance is provided by an insurance company. An HSA is not insurance coverage. For our full answer, read our [Is HSA health insurance?](https://livelyme.com/is-hsa-health-insurance) blog post.

Q) Is an HSA tax-deductible?

A)Yes. But you need to fill out the right forms. Read our blog post on [HSA Tax Forms](https://livelyme.com/what-hsa-tax-forms-do-you-need-to-fill-we-know/).

Q) Are HSA contributions pre-tax?

A) Your HSA contributions are pre-tax if made by payroll deduction.

Q) What happens if I use my money to pay for a non-qualified expense?

A) If you are under 65 years old, you will have to pay ordinary income taxes as well as pay a 20% penalty for the amount you’re disbursed out of your HSA account. If you are 65 or older, disabled or die, then you will just pay ordinary incomes taxes (no penalty). If you find yourself in this situation, you can attempt to put money back into your HSA funds before tax time each year.

Q) Does an HSA roll over?

A) Once funds are deposited into the HSA, the account can be used to pay for qualified medical expenses tax-free, even if you no longer have HDHP coverage. The funds in your account roll over automatically each year and remain indefinitely until used. There is no time limit on using the funds.

<h2>Get a free HSA</h2>

Things like your flexibility in contributing, the ability to keep your unused balance and additional tax benefits make HSAs the wisest choice. So [sign up for an HSA – it's free →](https://livelyme.com/)

HSA Guide 

Learn how to use a Health Savings Account to pay for qualified medical expenses for you and your dependents.

Health Savings Account Guide - IRS-Qualified Medical Expenses & More

2019 HSA Guidebook

<p>It’s that time of year again, when 80% of Americans spend less than an hour researching one of the most important decisions they’ll make this year: their health coverage.  Unfortunately, this often leaves many people under-insured or without the right coverage for their needs.  To prevent this from happening to you, we have a few tips that’ll help you make the right decisions for you and your family this open enrollment season.</p>

<p></p>

<h2>Tip #1- Review Your Family’s Recent Health History</h2>

<p>To make sure you’re buying the right coverage for your family’s needs, you need to know what those needs are.  During open enrollment, roughly 90% of Americans choose the health plan they had the previous year, despite any changes in health.  Sometimes this is fine.  Other times, it leaves them under-insured.</p>

<p>So take a look at what your family’s medical needs have been over the last two years.  How did your current plan support you?  Where did it fall short?  Then ask yourself if you or a family member has been recently diagnosed with a condition that will require ongoing treatment.  If so, you’ll want to take that treatment into account when choosing a plan.</p>

<h2>Tip #2- Assess Recent or Near-Future Life Changes</h2>

<p>Are you getting married?  Pregnant or wanting to get pregnant?  Are you planning to move away from your preferred doctor and want to make sure you have access to another health provider you like?  To make the right decision for your 2019 health coverage, you’ll want to anticipate how these future changes will affect your healthcare needs.</p>

<h2>Tip #3- Check Your Current Benefit Options</h2>

<p>Plan names can stay the same but the benefits included within them could change.  So even if you keep the same plan as you had last year, it could end up costing you more or less depending on what changes your employer or the plan provider made.  Possible changes to look for are:</p>

<ul>
  <li>Coverage levels</li>
  <li>Pricing</li>
  <li>Types of products offered</li>
  <li>New providers for existing products</li>
  <li>New products from existing providers</li>
</ul>

<h2>Tip #4- Check to see if Premiums and Deductibles Have Changed</h2>

<p>Sometimes companies change the amount to which they’ll contribute to their employees’ health plans.  If your company has changed its contribution levels, this will likely affect the amount you pay in premiums and deductibles.  It might also affect the attractiveness of HSAs and FSAs in order to help with those deductibles.</p>

<h2>Tip #5- Do Your Own Research</h2>

<p>Your company will likely put out official communication regarding your benefits options and reviewing its resources is a good place to start.  But it’s not a place to end.  Many companies like <a href="https://www.alegeus.com/insights/1232-choosing-a-health-insurance-plan">Alegeus</a>, which is an administrator of health benefits for organizations, provide resources to help consumers make the right choices when it comes to their benefits.  By doing your own research, you’re more likely to get a neutral third party assessment of your plan options, and you might even find better benefits in the marketplace than your company is offering.</p>

<p>If you do find better plans that you think your company should consider, try sending them to your Human Resources (HR) Department.  When HR knows what employees need, they can make better choices in terms of what benefits they offer in the future.</p>

<h2>Tip #6- Check Your Company’s Wellness Initiatives</h2>

<p>Companies have realized that a healthier workforce is a more productive workforce.  To incentivize healthy behavior, many have started programs that reward such behavior with increased benefits like more HSA money, lower premiums and other perks.  Check with your HR Department to see if you might qualify for any increased benefits.</p>

<p>Navigating the healthcare labyrinth can feel like a job in and of itself.  But if you follow our six tips, you’re more likely to make the right decisions for your family and could end up saving money over the course of the year.</p>

open-enrollment-employee-tips.png

We have six tips that’ll help you make the right decisions for you and your family this open enrollment season. 

Open Enrollment Tips for Employees

__Editor’s note__: An earlier, and shorter version of this [blog post](https://livelyme.com/individual-vs-family-hsa/) was previously published. We published this update because it’s vital you know the differences between a family HSA and individual HSA, and how to tap into your HSA funds for your family.

---

Familiar with the tax-saving benefits of a health savings account (HSA), and wondering how you can extend those benefits to your family? While an HSA is owned by one person, there is a way to tap into those HSA funds for the rest of your family. Discover how, and the differences between a family HSA and individual HSA.

## Your HSA is Dependent on Your Health Care Coverage

To contribute to an HSA, you must enroll in an eligible [High-Deductible Health Plan](https://livelyme.com/what-is-a-high-deductible-health-plan-hdhp) (HDHP). 

__For 2020, the [HSA eligibility requirements](https://livelyme.com/hsa-guide#qualifying-for-an-hsa-account) are as follows:__

- The annual minimum deductible for individual health care coverage must be $1,400. And $2,800 for family health care coverage. 
- The health plan’s out-of-pocket maximum cannot exceed $6,900 for individual coverage. And $13,800 for family coverage. 

__These eligibility requirements change in 2021:__

- The annual minimum deductible for individual health care coverage must be $1,400. And $2,800 for family health care coverage (No change from 2020).
- The health plan’s out-of-pocket maximum cannot exceed $7,000 for individual coverage. And $14,000 for family coverage ($100 and $200 increase from 2020).

## What is a Family HSA?

![what-is-family-hsa](//images.ctfassets.net/6j8y907dne6i/2AyTsX5zWqJw75Sf8dPxjn/27b942e17c0757642c853d85db8abfe4/what-is-family-hsa.jpg)

While often referred to as a “Family HSA” account, there is actually no such thing. 

Each HSA is owned by one person. But family coverage under a qualifying HDHP allows you to use your HSA to pay for qualifying medical expenses for yourself and your family. The type of health plan (individual or family) you’re enrolled in decides how much you can contribute to your HSA account in one calendar year. 

If you are enrolled in an individual qualifying high-deductible health plan, you will only be able to contribute the individual maximum contribution amount set annually by the IRS. If you and your family are covered by the same qualifying health plan, then your contribution limit is increased to the annual contribution limit set for families. One rule: To contribute the maximum family contribution limit, none of the family members can be claimed on another person’s [tax return](https://www.irs.gov/irb/2004-02_IRB). 

## Annual HSA Contribution Limits

![hsa annual contribution limit](//images.ctfassets.net/6j8y907dne6i/3mripn4V4Q51N7FfM26AEf/283c4bf5ded5d8aefbf448ea77e7b317/hsa_annual_contribution_limit.jpg)

In 2020, you are allowed to contribute the following amounts to an HSA:

- $3,550 for individual health plans
- $7,100 for family health plans

These contribution limits change slightly in 2021:

- $3,600 for individual health plans
- $7,200 for family health plans

If enrolled in an HSA-eligible HDHP, and at least 55 years old—or will be 55 any time in the calendar year—you can make an extra $1,000 contribution. This is a [“Catch-Up” Contribution](https://livelyme.com/what-is-an-hsa-catch-up-contribution). 

The catch-up contributions for 2020 and 2021 are the same: $1,000 on top of your maximum contribution limit.

## Real-Life Examples
### Individual Health Plan with HSA

During open enrollment, James chooses an HDHP because he wants to take advantage of his employer’s contributions to an HSA. James is not currently married and doesn’t have any dependents, so his health plan will cover only him.

As an individual, James can contribute $3,550 dollars into his HSA account in 2020 without a penalty.

### Family Health Plan with HSA
Fast forward a few years, and James is now married with two children. James is at a different company, but still has his HSA and an HDHP that covers him and his family.

James is now eligible to contribute the family limit to his HSA. We won’t know exactly what that amount will be in the future. But if James had his family covered by his health plan in 2020, he would be able to contribute $7,100 within one calendar year.

## Can I Have a Joint HSA With My Spouse?
![no-joint-hsa-with-spouse](//images.ctfassets.net/6j8y907dne6i/4JyBNCLJUiCy6ietwyTrGn/588c28e6b0352282f87b6d0c6643cfe9/no-joint-hsa-with-spouse.jpg)

*Short answer:* No. An HSA is owned by one person. 

Yet, there is a way for you and your spouse to have HSAs of your own. If you and your spouse are covered under the same HDHP, you can each open your own HSA and contribute separately. But, the amount you and your spouse contribute, combined, cannot exceed the contribution limit for a family plan. 

### Real-Life Examples:

#### Family HSA Contribution Limit with Two Accounts

Jack and Diane are married and covered under Jack’s high-deductible health plan. Diane wants to take advantage of her employer’s HSA contributions, so she decides to open up an HSA of her own. 

In 2020, Jack and Diane’s total contributions cannot exceed $7,100. That means that whatever Jack contributes to his HSA and whatever Diane contributes to her HSA added together needs to be $7,100 or less. 

Jack and Diane can use these funds to pay for the [qualified medical expenses](https://livelyme.com/whats-eligible/) of those covered under their health plan, including each other.

#### Family HSA Contribution Limit with One Account

The other option is to have the entire amount of the HSA in one account holder’s name. In this case, Jack opts not to contribute anything into his HSA for the year, and Diane and her employer will be able to contribute the entire amount into her account.

## The Benefits of an HSA

![hsa-retirement-benefits](//images.ctfassets.net/6j8y907dne6i/1okT5ICuYiKx6c18Oof9dK/0e331b4135f6588ed8df49e0f2a24bdd/hsa-retirement-benefits.jpg)

There are four primary [benefits of having an HSA](https://livelyme.com/what-are-the-benefits-of-an-health-savings-account).

1. __Three levels of tax savings__. Pre-tax or tax-deductible contributions. Tax-free interest, and investment earnings. And tax-free withdrawals when used for qualifying medical expenses.
2. __Portability__. HSAs aren’t tied to your employer. If you decide to move to a different company or retire, your HSA stays yours. The funds added to your account stay there until you choose to withdraw or roll it over; like a 401(k).
3. __ A safety net in the event of a health-related emergency__. An HSA helps you save for the unknown. It can be used for unexpected health care expenses or health insurance if you’re between jobs. An HSA covers all qualified medical expenses, even after a change of plans or providers.
4. __ Flexibility in retirement__. When you turn 65, your HSA can be used for non-health-related expenses without penalties; like a 401(k), or IRA.

An HSA is a great safety net in the event of a health-related emergency. And with options to invest, choosing to open an HSA is one of the best financial choices you can make for you and your family. 
















family hsa and individual hsa contributions are dependent on health care coverage

family-hsa-vs-individual-hsa

Learn the differences between a Family HSA vs Individual HSA. And how to extend HSA benefits to your entire family. 

Family HSA vs Individual: What’s the Difference?

Dividing your assets, such as 401(k)s and Health Savings Accounts (HSAs) is a central piece of negotiating a divorce settlement. If you receive health insurance through your spouse’s employer, you want to carefully consider whether it makes sense to stay on your partner’s health insurance after you divorce.

## Tips for navigating health insurance when divorcing

### You can pay for health insurance through an ex’s health insurance.

If your health insurance was through your partner’s workplace plan, you may be able to stay on the plan for up to 36 months. The federal COBRA legislation requires any firm or organization with at least 20 employees to offer health insurance to the divorced partner. If your soon-to-be-ex works for a smaller employer, you may be eligible for extended COBRA coverage through a state-run plan.

But there’s a big expensive catch to COBRA health insurance coverage: Once you are divorced, the employer no longer will subsidize the premium cost for the non-employee. 

You will be required to pay the full cost. According to the Kaiser Family Foundation, the average monthly premium for single coverage through a group plan was nearly $7,200 in 2019.  And the employer is also allowed to tack on an additional 2% annual fee to cover administrative charges.

### Check out your employer’s health insurance. 

If you were on your partner’s plan because it was more robust or cost-effective than the plan offered by your employer, time to circle back to your workplace plan. It may now be more cost-effective than staying on your ex’s plan through COBRA. 

Getting divorced is considered a [qualifying life event](https://livelyme.com/life-events-that-can-change-your-healthcare-costs), so you’ll be able to enroll for health insurance outside of open enrollment. 

### Compare COBRA coverage to an ACA-marketplace plan.

Before you finalize your divorce, spend some time pricing out purchasing your own health insurance through the ACA marketplace. Depending on your income you may be eligible for subsidies. You can start your search at the [healthcare.gov](https://www.healthcare.gov/) website.

### Include the cost of paying for health insurance in your divorce negotiations. 

It’s likely that whatever health insurance solution you land on, the premium is going to be a sizable line-item cost in your monthly budget. You should factor that into negotiations for assets. And keep in mind that if there is a family HSA account that has a sizable balance, that is a valuable asset to also bring into your discussions. 

### Consider a legal separation as a temporary step. 

If you are legally separated, but not divorced, you may be able to stay on a spouse’s plan, but it varies by employer and insurer.

### Sort out who pays for insurance coverage of the kids.

This is obviously a key part of your divorce negotiation. If you opt for joint custody and you both assume responsibility for health insurance, the spouse whose birthday falls earlier in the calendar year will have the “primary” insurance for the children. If there isn’t joint custody, the custodial parent typically assumes responsibility for health insurance for children. If the custodial parent remarries, and doesn’t have health insurance, the responsibility can fall to the custodial parent’s new spouse. If that isn’t an option the non-custodial parent will be required to step in and provide health insurance coverage.

Given the complexity of divorce, including health insurance coverage. consulting with a lawyer experienced in divorce law is a smart move to ensure that everyone in the family is covered. 



stay-on-insurance-divorce

Divorce is a complicated process - and it doesn't help that your health insurance gets tied up into the process as well. We detail some information that you will need to know regarding your healthcare if you are getting divorced from your partner.

How Long Can I Stay on My Partner's Insurance After a Divorce? 

<p>Helping employees understand the benefits of an HSA (like any new HSA user), takes time and resources. In order to make the HSA education and engagement process easier for employers and employees, we have outlined our best practices.</p>
<p></p>
<p>Our employee HSA education guide will help you get HSA strategies&nbsp;in place from day 1 so employees can take advantage of the&nbsp;<a href="https://livelyme.com/what-are-the-benefits-of-an-health-savings-account/">triple-tax benefits</a>&nbsp;immediately.</p>
<h2>HSA Employee Education Tips</h2>
<p>Opening, establishing and contributing to an HSA should be easy.&nbsp;It shouldn&#8217;t be rocket science, that&#8217;s at least what we think at Lively! Here is what every employee needs to know to get started with their new HSA:</p>
<ol>
<li>Confirm&nbsp;<a href="https://livelyme.com/hsa-eligibility-details/">HSA-Eligibility</a></li>
<li>Understand&nbsp;<a href="https://livelyme.com/2018-hsa-contributions/">Contributions&nbsp;Limits</a></li>
<li><a href="https://livelyme.com/add-1-hsa-day-1/">Open and Establish their HSA</a></li>
<li>How to&nbsp;<a href="https://livelyme.com/hsa-rollovers-transfers/">Rollover or&nbsp;Transfer</a>&nbsp;an Existing HSA</li>
<li><a href="https://livelyme.com/set-forget-hsa/">Automating HSA Contributions</a></li>
<li>Use an HSA&nbsp;<a href="https://livelyme.com/hsa-debit-card/">Debit Card</a>&nbsp;for Eligible&nbsp;Purchases</li>
<li>Review&nbsp;<a href="https://livelyme.com/can-i-invest-my-hsa-money/">HSA Investment</a>&nbsp;Options</li>
</ol>
<p>No employer health or financial situation is the same. Once employees have opened&nbsp;an HSA, customizing&nbsp;HSA strategies can help each and every eligible employee take advantage of their HSA benefits. This will better ensure success (and renewal). Let&#8217;s look at two likely employee HSA scenarios:</p>
<ul>
<li><b>HSA Saver</b>&nbsp;&#8211; HSA savers are more focused on the long-term savings value of an HSA. They can invest their funds or simply take advantage of FDIC-Insured interest bearing&nbsp;HSA accounts. Thereby taking advantage of compound interest and save HSA funds for future health costs.</li>
<li><b>HSA Spender</b>&nbsp;&#8211; These employees are using pre-tax HSA funds to pay for expected and unexpected health costs. They can use their dedicated HSA funds to reduce their out-of-pocket health expense liability.</li>
</ul>
<p>Many HSA account holders are a mix of both. Helping employees save for health costs today and plan for anticipated health costs well into retirement will only increase HSA adoption.</p>
<h4>Employee Engagement and Support</h4>
<p>Things come up. Employees get stuck. We get it. We have&nbsp;been through it ourselves. Making sure on-demand support options are available for employees is crucial in this process. It saves everyone time. Employee HSA education is an ongoing process. So we created an on-demand resource center to help &#8211; from an&nbsp;<a href="http://support.livelyme.com/">HSA FAQs</a>&nbsp;to&nbsp;<a href="https://livelyme.com/calculator/">HSA saving calculators</a>. We backed it all up with a dedicated&nbsp;customer&nbsp;service team to answer employee&nbsp;questions via&nbsp;<a href="mailto:support@livelyme.com">email,</a>&nbsp;<a href="tel:1-888-576-4837">phone</a>&nbsp;or chat (via our website).</p>
<h4>Don&#8217;t&nbsp;Forget! Talk About Retirement &amp; Health Costs</h4>
<p>Many employees are stuck on a year-to-year&nbsp;ferris&nbsp;wheel when it comes to health insurance and cost planning. Employees are forced into rising yearly health insurance premiums and out-of-pocket costs. Not planning for health costs in retirement &#8211; which are&nbsp;<a href="https://www.cnbc.com/2017/11/24/health-care-costs-in-retirement-can-top-275000.html">expected to exceed&nbsp;$275,000 per couple</a>&nbsp;&#8211; can be a financial mistake. Employees can use their HSA to plan and save for retirement. In fact, an HSA might be the&nbsp;<a href="https://livelyme.com/stealth-ira/">new stealth IRA</a>.</p>
<p>Opening an HSA is easy (at least at Lively). Helping employees understand the value of an HSA should be too. Use this employee HSA guide&nbsp;to fast-track benefits education to save employees time.</p>

Employee-HSA-Guide.jpg

Helping employees understand the benefits of an HSA (like any new HSA users), takes time and resources. In order to make the HSA education and engagement process easier for employers and employees, we have outlined our best practices.

Employee HSA Guide

Lively Blog

__Editor’s note:__ An earlier, and shorter version of this [blog post](https://livelyme.com/what-is-an-hsa/) was previously published. We published this update to provide a more comprehensive response to “What is an HSA?” This new blog outlines the rules and uses of account ownership, and more.

---

It’s a fact. The cost to be - and stay - healthy rises each year. And even the comprehensive  (expensive) health insurance plans are covering less for the cost of care. So what’s a person to do? Open an HSA.

A Health Savings Account (HSA) allows you to set aside money on a pre-tax basis to pay for qualified medical expenses. You, your employer, and even friends and family can contribute money to your HSA. The contributions are tax-deductible and never expire. So you can save them for a rainy day, retirement, or to help pay for an expensive procedure you have coming up.

## How Do I Qualify for an HSA?

To qualify for opening and contributing to an HSA, you must meet these criteria:

1. You must enroll in a [High-Deductible Health Plan](https://livelyme.com/what-is-a-high-deductible-health-plan-hdhp) (HDHP). In 2020, the IRS defined HDHPs as any plan with a deductible of at least $1,400 for an individual and $2,800 for a family. The total annual out-of-pocket expenses can’t exceed $6,900 for an individual or $13,800 for a family.  
2. You can’t have any other supplemental health insurance coverage. Meaning, you can’t be covered under your spouse’s health insurance plan too.
3. You must not be eligible for or enrolled in Medicare.
4. You must be under the age of 65.
5. You can’t contribute to a [Health Flexible Spending Account](https://livelyme.com/what-is-a-healthcare-fsa) (HFSA). But you can contribute to a [Dependent Care](https://livelyme.com/dependent-care-fsa-dcfsa-work) (DCFSA) or [Limited-Purpose FSA](https://livelyme.com/what-is-a-limited-purpose-fsa) (LPFSA) and contribute to a health savings account in the same year.

## How Does a Health Savings Account Work?

![how-does-health-savings-account-work](//images.ctfassets.net/6j8y907dne6i/3zynuAFE9SoOfJRy8MT7lO/d0078bf16189f8141aeeaa5b7ae1da54/how-does-health-savings-account-work.jpg)

### Step 1: Elect a high-deductible health plan during open enrollment.

### Step 2: Open a health savings account and decide how much you want to contribute. 

To enroll in an employer-sponsored health savings account, you'll likely open your HSA during open enrollment. Let your employer know how much you want to contribute for the year (up to the IRS contribution limit). And your employer will begin making payroll deductions each month.

Your employer may choose to contribute to your HSA. But they’re not required to. If they do, those contributions will count toward your annual limit. But will remain tax-free to you.

Maybe your employer doesn’t offer a health savings account. Or it’s outside of open enrollment and you want to get started on saving for your health care costs today. You can open an HSA with a financial institution in the private market.

With this route, you will make arrangements to fund your HSA with the account administrator. And your contributions will be deducted from your gross taxable income when you pay taxes for that year.

### Step 3: Use your funds for qualified medical expenses.

To use your funds, your account administrator may provide a debit card so you can pay for your health care costs at the point of sale. Or you will pay for costs upfront and submit documentation for [reimbursement](https://livelyme.com/hsa-reimbursement-rules). Your withdrawals are tax-free as long as you use the money to pay for qualified medical expenses. If you use your money for something else, the money you withdrew will be subject to income tax plus a 20% penalty.

![mobile-wallet-hsa-expenses](//images.ctfassets.net/6j8y907dne6i/xFSNWNpRjvuAnTymT4F18/108a46d5452cfb9b855a03c76bab9755/mobile-wallet-hsa-expenses.jpg)

__Additional health savings account details:__

- You own your account so you can take it with you from employer-to-employer (or employer to unemployed). 
- Even if you choose a health insurance plan that isn’t an HDHP, you can still use past contributions for out-of-pocket, qualified medical expenses. But you won’t be able to contribute to your account.
- Employer contributions are tax-free.
- If you’re under the age of 65, you must use your contributions for qualified medical expenses.
- Once you reach 65, you can no longer contribute to your account. But you can use your savings to pay for whatever you’d like.  
- An HSA offers triple tax savings: pre-tax or tax-deductible contributions, tax-free interest and investment earnings, and tax-free distributions when used for qualified medical expenses.

## How Much Can I Contribute to My HSA?

[Contribution limits](https://livelyme.com/hsa-guide#maximizing-your-savings) are set annually by the Internal Revenue Service. 

For __2020__, those limits are:

- $3,550 for someone with an individual health plan.
- $7,100 for a family health plan.
- An additional $1,000 “catch-up” if one or both members of the family are aged 55 or older.

For __2021__, those limits are: 

- $3,600 for someone with an individual health plan.
- $7,200 for a family health plan.
- An additional $1,000 “catch-up” if one or both members of the family are aged 55 or older.

## What Can I Use a Health Savings Account For?

![hsa-eligible-expenses](//images.ctfassets.net/6j8y907dne6i/42Oe00AuAcE2fs9KFkcmHS/b30013424117eb2a8c42b7c42b094e5c/hsa-eligible-expenses.jpg)

HSA-eligible expenses include (but are not limited to):

- Deductibles
- Copays
- Coinsurance
- Out-of-pocket costs related to diagnostic services like x-rays and blood tests
- Prescriptions
- Quality of life enhancers like air purifiers (with a letter of medical need)
- Medical supplies like band-aids and crutches
- Alternative medicine treatments like acupuncture

This list is not exhaustive. For a comprehensive list of IRS-qualified medical expenses check [“What’s Eligible."](https://livelyme.com/whats-eligible)

## What Happens to My HSA if I Switch Employers?

You get to keep your account and every dollar you’ve saved. Although you may not be able to continue contributing to that same account. 

If your new employer uses a different health savings account administrator, you will have two options. Roll the HSA from your previous employer into the new account or maintain two different HSAs. One account from your previous employer - from which you can withdraw but not contribute. And one from your current employer into which you can start contributing.

For more details about your specific situation, contact your HR department.

## Where Can I Sign-Up for an HSA?

![sign-up-lively-hsa](//images.ctfassets.net/6j8y907dne6i/4sUTWDriKFMgGBrIHxeyH9/a36ee79d497005f21445666727ab98e6/sign-up-lively-hsa.jpg)

You can sign up for an HSA in two places. Through your employer, if it offers this benefit. Or through a financial institution in the private market.

Here, at Lively, we offer a private-market HSA that allows you to put your contributions into mutual funds or other investments. That way you can access an even greater benefit: growing your money with the market.

As you can see, there are many ways an HSA can help you save money for health care expenses and retirement. A health savings account can also offer security should you lose your health insurance coverage for a period of time. For more information about HSAs, check out our [HSA Guide](https://livelyme.com/hsa-guide).







what-is-hsa

Learn more about HSAs including the qualifications for opening and contributing to a health savings account, how much you can contribute annually, how to use your account for qualified medical expenses, and more.

What is an HSA? Qualifications, Contributions, Uses, and More

*__Editor’s note:__ This post was originally published on June 29, 2017 and updated on September 3, 2020.*

In a world of text, chat and email it can feel like everything is (or has) an acronym. Health insurance plans are no exception. You may have come across the acronym HDHP and are wondering "What is a High Deductible Health Plan (HDHP)?" Continue reading to learn how choosing an HDHP could benefit you. Provided it gives you the coverage you need.

To start, an HDHP is a health insurance plan defined by lower premiums and a higher deductible. But don't let "higher deductible" scare you off. Here are two reasons why an HDHP could make sense for you:

1. All preventative care is covered before the deductible, and
2. HDHPs are an affordable way to get the coverage you need without paying more for extras you may not need.

HDHPs are also the only health insurance option that can be paired with a Health Savings Account (HSA). An HSA can help pay for the high-deductible or to save money for future medical costs.

<iframe src="https://player.vimeo.com/video/377355900" width="640" height="360" frameborder="0" allow="autoplay; fullscreen" allowfullscreen></iframe>

## What is Considered an HSA-eligible HDHP?

Annually, the IRS redefines what it considers an HDHP (adjusting for inflation). In 2020, their parameters were a [health plan](https://livelyme.com/hsa-guide) with a deductible of at least $1,400 for an individual and $2,800 for a family. As well as out-of-pocket expenses that didn’t exceed $6,900 for an individual and $13,800 for a family.

In 2021, the minimum deductibles will be the same. But the maximum out-of-pocket limits will rise to $7,000 for an individual and $14,000 for a family.

There's one other qualifying characteristic of HDHPs. The individual pays for the cost of healthcare, up to the deductible, before insurance pays for services. The one caveat here is preventative care. All preventative care is covered before the deductible.

## How Does a High Deductible Health Plan Work?

![preventative-care-included-hdhp](//images.ctfassets.net/6j8y907dne6i/5j1glZm5E5y47Fi5eW2T2K/1ebc0d46beb92be8021d514656948957/preventative-care-included-hdhp.jpg)

HDHPs charge participants lower monthly premiums. This is in exchange for requiring higher deductibles and out-of-pocket maximums.

Choosing an HDHP could make sense if you don't need many health care items or services. Or if you only visit the doctor for preventative care. This is because you'll be spending less on your monthly [health insurance plan](https://livelyme.com/compare-health-insurance-plans) premium. An HDHP could also make sense if you need more care. Here's why.

Because HDHPs have a higher deductible, the IRS allows you to deposit pre-tax money into a savings account called an HSA. Also known as a [Health Savings Account](https://livelyme.com/what-is-hsa). HSAs are tax-advantaged accounts because contributions are pre-tax.

The distributions and any gains those contributions make can also be tax-free. That's as long as the contributions are used to pay down your deductible or to pay for other qualified medical expenses. Depending on your tax bracket, this could help you save up to 30% on medical expenses.

Where an HDHP could get you into trouble is if you suffer a catastrophic event that requires an expensive procedure or treatment. And you can’t afford the out-of-pocket maximum. Or if you have or develop a chronic condition that needs management.

__Decide which plan is right for you with our [Health Plan Comparison Calculator](https://livelyme.com/compare-health-insurance-plans).__

To choose an HDHP, you would make the election during the open enrollment period for either your place of employment or in the private market. The other time is after a [Qualifying Life Event](https://livelyme.com/when-should-i-consider-changing-my-health-plan). If you’ve experienced a life event like the loss of health insurance, marriage, the birth of a child, or death of a dependent, you can sign up for an HDHP at any time during the year with a special enrollment period.

## What Are the Benefits of a High Deductible Health Plan (HDHP)?

![high-deductible-health-plans-lower-premium](//images.ctfassets.net/6j8y907dne6i/45YNFcVTSqOIH1GiPuzUVQ/150ddbbe5981bcf60c7150e50f13f6d1/high-deductible-health-plans-lower-premium.jpg)

Whether you’re considering an HDHP or have been using one for years, there’s no question that higher deductibles are a tough pill to swallow. The good news is, this type of health plan does offer some unique flexibility and opportunities that other health insurance plans lack.

1. __Flexibility__ – HMO health insurance plans require referrals from a primary care physician. This can be extremely frustrating for individuals who need to have some kind of care outside of a general practitioner. While HDHPs still have in and out of network designations, the list of in-network providers is extensive. And you can see a dermatologist, cardiologist, or other specialists even if you haven’t yet designated a primary care physician.
2. __Lower cost__ – The problem with large, overarching health plans is they try to cover everyone. This might sound good on paper, but not in practice. This often leads to people with low health care needs paying more to cover people with high health care needs. HDHPs reward limited use of the medical system by charging participants low monthly premiums. While also covering preventative care before the deductible is met.
3. __Health savings for the long term__ – HDHPs are the only health insurance plan that you can pair with an HSA. You own the contributions both you and your employer make to your HSA. And they never expire. The funds can be saved or invested in stocks and mutual funds, making these accounts function as a medical safety net. This is beneficial if you lose your employment or your employer changes your health insurance options. Or if your health insurance company decides to discontinue the plan you’re on, or you experience a catastrophic event. Any of which could leave you scrambling to cover unexpected medical expenses. And in the event you don’t spend your contributions before the age of 65, you can use that money, tax-free, for any expenses. Just like another retirement account. 

## How Do I Know If an HDHP Is Right for Me?

![is-hdhp-right-for-me](//images.ctfassets.net/6j8y907dne6i/1lGHA7VDq1QmkbEHtrozbq/8ce9096c3149cd21eca124e9fb2a5cf3/is-hdhp-right-for-me.jpg)

*The right health insurance plan for you lies at the nexus of affordability and appropriate coverage.* You must be able to afford the monthly premium but also the annual out-of-pocket maximum in case you experience a catastrophic event.

The plan must also provide adequate coverage for your current medical needs. As well as those in the foreseeable future (e.g. having a baby, knee surgery, etc.). Inadequate coverage could cause your out-of-pocket expenses to get out of hand quickly.

So take a look at the specifics for the HDHP you’re being offered. Can you afford that monthly premium? If yes, then take a look at what procedures, treatments, and prescriptions are covered and at what levels. When taking coverage levels into account, can you afford the copays, co-insurance, and other out-of-pocket costs?

Do you have the ability to contribute even a small amount to an HSA? Something to remember about HSAs is the money is contributed pre-tax. That means you could end up saving up to 30% on medical expenses depending on your income taxes bracket.

If, after answering these questions, an HDHP looks like it makes financial sense, then it could be the right plan for you. If you have questions about your specific situation, you should always reach out to your HR department.

HDHPs are often thought of as an affordable health insurance option, especially for the healthy or if you know you’ll exceed your out-of-pocket maximum. Combine an HDHP's monthly affordability with the option to pair the plan with an HSA, and you have an attractive setup. Not only for those who have limited medical care needs but those who can afford to contribute a little extra each month toward future costs and savings. 

discover "what is a high deductible health plan?"

what-is-a-high-deductible-health-plan

Wondering “What is a High Deductible Health Plan?” Discover how they work, the benefits, and if an HDHP is right for you.

What is a High Deductible Health Plan (HDHP)?

__Editor’s note:__ *This post was originally published on March 17, 2018 and updated on September 2, 2020.*

You’ve heard about HSAs and FSAs. And you think they are a good way to save money for and on medical expenses. And your employer offers both as part of its benefits plan. 

You’re in luck. You get to choose the option best suited to your needs. And yes, you do have to choose. Because you can’t contribute to an HSA and a Healthcare FSA at the same time. Let’s discover which account type will win in HSA vs FSA.

So how do you choose? To make the best decision for you and your family, consider the details of each account. And compare those to the realities of your family’s medical and financial needs.

To start, let's look at what these accounts have in common.

Health Savings Accounts (HSA) and Healthcare Flexible Spending Accounts (FSA) are pre-tax accounts. And are both used to pay for qualified, out-of-pocket medical expenses. These include, but aren’t limited to, copays, deductibles, coinsurance, and prescriptions. Because contributions are pre-tax, you can save up to 30% on those out-of-pocket expenses. Depending on your tax bracket.

How are HSAs and FSAs different? Account functionality and account holder requirements are different for the two account types. Let’s learn a little more about each account type.

## What is a Health Savings Account?

![how-to-choose-between-hsa-fsa](//images.ctfassets.net/6j8y907dne6i/1JfvzE56bAaAExlGqDmfjd/eafd5bc19e833ef342e4349e4eb6f630/how-to-choose-between-hsa-fsa.jpg)

A [Health Savings Account](https://livelyme.com/what-is-hsa) is a kind of savings account that allows you to save for health care costs. And reduce your taxable income. In other words, HSAs are individually owned, tax-advantaged medical savings accounts. You can open one as an individual or as part of a family plan. As long as you and your family are enrolled in an HSA-eligible [High Deductible Health Plan](https://livelyme.com/what-is-a-high-deductible-health-plan-hdhp/) (HDHP).

### What’s Considered an HSA-eligible Health Plan?

For 2021, the IRS considers HSA-eligible HDHPs to be [health plans](https://livelyme.com/hsa-guide#qualifying-for-an-hsa-account) with a minimum deductible of $1,400 for individuals. And $2,800 for families. And a maximum out-of-pocket amount of $7,000 for individuals and $14,000 for families.

The IRS adjusts its allowed annual HSA contribution limits annually for inflation. Those limits for 2021 are $3,600 for individuals and $7,200 for families. If you have a [mid-year change](https://livelyme.com/hsa-contribution-limits-mid-year-changes) – like moving from self-only coverage to family coverage, or vice versa, then your annual contribution limit becomes prorated.

### How Does an HSA Work?

When you open your HSA, you choose how much you’d like to contribute annually. Then, your employer will deduct the appropriate amount from each paycheck. Your employer may choose to also contribute to your account. But they’re not required to.

If they do contribute, those contributions will count toward your [maximum annual limit](https://livelyme.com/hsa-guide#maximizing-your-savings). Choose your individual contribution amount carefully. And keep in mind that contributions are cumulative. Otherwise, you could end up going over the annual contribution limit.

If you’re under the age of 65, you must use your contributions to pay for qualified medical expenses. These include, but are not limited to:

- Copays
- Coinsurance
- Deductibles
- Acupuncture
- Mental health treatment
- Prescriptions
- Medical supplies like [bandages](https://hsastore.com/SearchProducts.aspx?q=band+aid&utm_source=Lively&utm_medium=TPA+Public+Proprietary+EL&utm_campaign=TPA+Partner), [crutches](https://hsastore.com/SearchProducts.aspx?q=crutches&utm_source=Lively&utm_medium=TPA+Public+Proprietary+EL&utm_campaign=TPA+Partner), [joint braces](https://hsastore.com/SearchProducts.aspx?q=braces&utm_source=Lively&utm_medium=TPA+Public+Proprietary+EL&utm_campaign=TPA+Partner), and more
- Hearing aids
- Dental health
- Vision tests

Want to see the full list of HSA-eligible expenses? Visit [What’s Eligible?](https://livelyme.com/whats-eligible/)

### How Age Affects HSA Use & Taxes

![age-affects-hsa-taxes](//images.ctfassets.net/6j8y907dne6i/1mxiaR9se6IhBYokKGgsdd/86de5569ecab00a84ae82f763e30789e/age-affects-hsa-taxes.jpg)

If you’re under the age of 65 and use your contributions for qualified medical expenses, those funds are not subject to federal income tax. But, your state tax liability for contributions depends on your state.

If you choose to use the money for something other than qualified medical expenses, you will incur a 20% tax penalty. And have to pay income taxes on the misused money. After age 65, you can use your health savings on anything you want provided income tax is paid on the amount of the non-qualified disbursement.

## What is a Flexible Spending Account (FSA)?

A [Healthcare FSA](https://livelyme.com/what-is-a-healthcare-fsa), aka Healthcare Flexible Spending Account, is a spending account your employer makes available to pay for medical expenses with pre-tax dollars.

### How Does a Healthcare FSA Work?

If you decide you would like to open an FSA, the good news is that you don’t have to purchase a specific health plan. In fact, you don’t have to purchase any health plan.

But you must elect to participate during your employer’s open enrollment period. Or within 30 days of starting employment if you begin your job mid-year. Then, you select the amount you would like to contribute to your account at that time. Your employer will then deduct the appropriate amount from each paycheck.

Your employer can choose to contribute to your FSA but is not required to do so. And their contributions don’t count toward your annual max. Unfortunately, you can’t change this election at any point outside of open enrollment. Unless you’ve experienced a [qualifying life event](https://www.healthcare.gov/glossary/qualifying-life-event/) like the birth of a child, death of a dependent, marriage, or divorce. 

![qualifying-life-event-fsa-contribution-amount](//images.ctfassets.net/6j8y907dne6i/td25GiIFP70vewqfrlrSD/751854829eee489fc8a0c81fddb11efb/qualifying-life-event-fsa-contribution-amount.jpg)

You also lose any unused money at the end of the year. Unless your employer offers either the option to rollover $500 to next year’s account or a 2.5 month grace period during which you can use leftover funds. So choose your contribution amount carefully.

Like with HSAs, the IRS imposes an annual limit on FSA contributions that adjusts annually for inflation. For 2021 that limit is $2,750. Unlike HSAs, FSAs are only opened on an individual basis, so there are no “family plan” increases for annual contribution limits. But if both you and your spouse are offered the opportunity to take part in an FSA at work, you can do so and each can contribute up to the maximum allowed amount.

FSA funds can be used to pay for out-of-pocket medical, vision, and dental expenses not covered by your health insurance plan. Including, but not limited to:

- Copays
- Coinsurance
- Deductibles
- Acupuncture
- Mental health treatment
- Prescriptions
- Medical supplies like [bandages](https://fsastore.com/SearchProducts.aspx?q=bandages&utm_source=Lively&utm_medium=TPA+Public+Proprietary+EL&utm_campaign=TPA+Partner), [crutches](https://fsastore.com/SearchProducts.aspx?q=crutches&utm_source=Lively&utm_medium=TPA+Public+Proprietary+EL&utm_campaign=TPA+Partner), [joint braces](https://fsastore.com/SearchProducts.aspx?q=joint%20braces&utm_source=Lively&utm_medium=TPA+Public+Proprietary+EL&utm_campaign=TPA+Partner), and more
- Hearing aids
- Dental health
- Vision tests

For a full list of medical expenses that you can use your FSA (or HSA funds) on, check out [Publication 502](https://www.irs.gov/forms-pubs/about-publication-502) from the IRS. You can also visit the [FSA Store](https://fsastore.com/?utm_source=Lively&utm_medium=TPA+Public+Proprietary+EL&utm_campaign=TPA+Partner).

## Choosing Between an HSA and Healthcare FSA

![choose-between-hsa-fsa](//images.ctfassets.net/6j8y907dne6i/EqKcpDQS9JGMip8psYcVj/994cea7acae40c6fc14eecff7688fdfc/choose-between-hsa-fsa.jpg)

### Eligibilty Requirements

- __FSA:__ Only employers can establish an FSA plan for employees to contribute. Employees can open an FSA regardless of if they have a HDHP or not. Self-employed individuals cannot open an account.
- __HSA:__ Employees are eligible only if they have an [HSA-eligible HDHP](https://livelyme.com/hsa-guide#qualifying-for-an-hsa-account). Individuals are not dependent upon their employer to offer an HSA. And an HSA can be opened from the private market. Self-employed individuals can open an account.

### Contribution Sources & Changes

- __FSA:__ The contribution amount is chosen during open enrollment or at the time of a qualifying life event. And the contribution amount can not be changed outside of these two time periods.
- __HSA:__ You can change your contribution amount at any time, no major life event required. This gives you the flexibility to increase or decrease your contribution at any time. *__Multiple contribution sources:__* You can grow your HSA in multiple ways. Not only can you add money to your HSA, but your employer, relatives, or anyone who would like to contribute can help your HSA grow.

### Rollover Rules

- __FSA:__ Employers choose whether an employee can keep their unused funds or not. There are three options: *__Forfeit__*: Employee forfeits money, and employers get to keep it. *__Grace period__*: Employee has a 2.5 month grace period after the plan year ends to use on expenses. Any remaining money after the grace period is employer’s. *__Carryover__*: Employees can add up to $500 of unused funds to next year’s plan (in addition to contribution limit). Employers decide the carryover limit, and any funds over the limit are the employer’s.
- __HSA:__ Funds do not expire from year-to-year. Rollover money is in addition to the contribution limits. Money in your HSA can be carried with you and is available even if you change health insurance plans, get a new job, or retire. And funds left in your account grow tax-free through interest or any investment gains.

### Account Ownership

- __FSA__: An FSA is owned by the employer. Unused funds belong to employers, not the employee.
- __HSA__: Funds stay with you. One of the best perks of an HSA is that the money you save always stays with you because you own the account. If money is left in your HSA at the end of the year, it stays put. No scrambling around trying to find ways to spend the money before the timer runs out.

### Access to Money

![accessing-hsa-fsa-contributions](//images.ctfassets.net/6j8y907dne6i/4lJ6EN6128M5SHmAuh8hzk/60301225072d2cec1be8a6e2fda926ca/accessing-hsa-fsa-contributions.jpg)

- __FSA:__ Money available from day one. Every penny you contribute to your FSA is available at the beginning of the benefit year. Or shortly after the first contribution is made. Say you add $2,000 to your FSA for the year, you’ll likely contribute about $80 per paycheck. Yet, the entire $2,000 is available to use at any time even though you only make small contributions during the year. Another perk? If you leave a position before the year is over, the money spent from your FSA doesn’t have to be paid back.
- __HSA:__ As the employee contributes to their plan. An employee only has access to what has actually been deposited into their HSA account.

### HSA: A Savings Asset

- *__After the age of 65, your HSA functions like any other retirement account.__* And you can use your HSA money on anything you wish. How does it differ from other retirement accounts? You don’t pay income taxes on money used for medical expenses. You do, however pay income taxes on money used for anything else.
- *__HSAs are assets you can pass on to your kin:__* If your spouse inherits the HSA, it retains its status as a retirement-like account. With the same rules and allowances as it had when you were the account holder. If you pass it on to someone other than your spouse, it stops being an HSA, and inheritance laws apply.

## Is an HSA or FSA Better for You?

![is-hsa-fsa-better](//images.ctfassets.net/6j8y907dne6i/7dkm3u9Ez0B7z6r7ZndKdK/d746299a286d54387aae669880b9cbb2/is-hsa-fsa-better.jpg)

Deciding between an HSA and FSA depends on your medical and financial needs. The principal requirement for an HSA is enrollment in an HDHP. And while preventative care is covered before the deductible under HDHPs, most other care is not. That means you will have to pay for your medical expenses for you and your family out-of-pocket until you reach your deductible.

An HSA-eligible HDHP makes the most sense in two cases. First, if you or one of your family members has a condition that needs managing by either a specialist or with speciality prescriptions or treatments. In this case, you’ll likely exceed the deductible and be able to use HSA funds to save up 30% on out-of-pocket medical costs.

Secondly, if you rarely use the medical system except for routine preventative care (that includes vaccines and well visits for children) and really want the ability to use your pre-tax account as an investment vehicle to save for retirement. Then, an HSA/HDHP arrangement may be the best choice for you.

To make the best decision for you and your family, start by assessing your past medical needs and those you can project. Then take a look at your finances. Choose the account and health insurance plan arrangement that sits at the nexus of best health coverage and account flexibility.

hsa-vs-fsa

An HSA and FSA provide up to 30% savings on out-of-pocket healthcare expenses. But you can’t contribute to both at the same time. Let’s explore each account type to help you decide which wins in HSA vs FSA.

HSA vs FSA: How to Choose Between an HSA and Healthcare FSA

pexels-photo-259363.jpeg

Paying for out-of-pocket medical expenses with an HSA and paying lower premiums with higher deductible heath care is better than a PPO plan.

HDHP HSA vs PPO Plans: Which is better for healthcare?

HDHP HSA vs PPO: Is HSA or PPO Better?

Editor’s note: An earlier, and shorter version of this [blog post](https://livelyme.com/what-does-it-mean-to-reimburse-myself-with-my-hsa) was previously published. We published this update to help you learn about HSA reimbursement rules and choose the best timing for your reimbursements. Plus, learn how delaying reimbursement can build wealth and security in retirement.

---

When you have a medical expense there are two ways of paying. You can either 1) swipe your [Lively Visa debit card](https://www.benefitnews.com/news/lively-visa-partner-on-debit-processing-hsa) at the time of purchase, or 2) reimburse yourself later. 

What does it mean to “reimburse” yourself with your Health Savings Account (HSA)? It means paying out-of-pocket for an HSA-qualified medical expense and then using money from your HSA to pay yourself back. This can be done even if you don’t have money in the account the day the expense incurred, and at any time in the future. Whether you reimburse yourself now⁠—or later⁠—has some interesting benefits.

## Paid for a Medical Expense Out-of-Pocket? What’s Next?

As long as the qualifying medical expense was made after the establishment of your HSA, you can use your HSA to pay yourself back for your out-of-pocket expense. And while it isn’t required that you submit receipts to be reimbursed from your HSA, we recommend it in case of an IRS audit. 

### Know What Qualifies as an HSA-Eligible Medical Expense

There are thousands of HSA qualified medical expenses. Expenses are likely pretty obvious if you’re at the doctor’s, having an eye exam, or at a dentist appointment. But what about over-the-counter products like sunscreen, prenatal vitamins, or contact lens cleaning solution? 

Use “[What’s Eligible](https://livelyme.com/whats-eligible/)” to find qualifying medical expenses without the requirement of a doctor’s note, with a prescription, or with a doctor’s letter. Better yet; let Lively’s Expense Scout do the searching for you.

### Expense Scout

Don’t spend your time scanning receipts trying to find your HSA-eligible medical expenses. 

Instead, use Lively’s [Expense Scout](https://livelyme.com/expense-scout/) to scan and alert you of potential HSA-eligible expenses from linked external accounts. Like your personal debit card or credit cards. Expense Scout prompts you to a list of expenses for review. Then you have the option to reject or submit them⁠—with receipt—for reimbursement, now or later.

## Document All Medical Expenses

![document-all-expenses](//images.ctfassets.net/6j8y907dne6i/4FopIwi9mrF1zEqiMZQpxi/aadc96e2bbe2ec9a3e7426a5a4f48b6d/document-all-expenses.jpg)

To justify spending money on a qualified medical expense, you should keep or track your expense receipts. Receipts should be kept for as long as your tax return is open and subject to an audit; usually three years. Or as long as your HSA is open. Whichever is longer.

Some HSA companies (like Lively) offer digital receipt filing so you can document your receipts without having to save piles of receipts. This is helpful if you plan on paying for out-of-pocket expenses and reimbursing yourself “20 years” from now. But, more on that hack in a bit. 

### Records to Keep in Case of an IRS Audit 

It’s best to save a copy of your health insurance carrier’s Explanation of Benefits (EOB) in case the IRS audits you. This documents the expenses for services covered under your High-Deductible Health Plan (HDHP). You should also keep receipts for all products or services you paid for.

In case of an [IRS audit](https://www.irs.gov/forms-pubs/about-publication-969), you need to have records that prove:

- Distributions were to pay or reimburse qualified medical expenses,
- Qualified medical expenses had not been paid or reimbursed from another source, and
- The medical expenses had not been taken as an itemized deduction in any year. 

When you choose to be reimbursed for an eligible medical expense that’s called a __distribution__.

If you take a distribution your HSA provider will send you [Form 1099-SA](https://livelyme.com/what-is-irs-tax-form-1099-sa). You should be prepared to file [Form 8889](https://livelyme.com/irs-tax-form-8889) with your annual taxes. If there’s something that doesn’t match between forms 1099-SA and 8889, resolve it before filing your taxes. Keep reading to learn how HSA distributions are taxed and reported.

## When Can I Reimburse Myself for an Out-of-Pocket Expense?

![when-hsa-reimbursement](//images.ctfassets.net/6j8y907dne6i/2DcikyDJz1nLL4z6MHOCy1/36828f85b62ccab059de8b6a9336d31b/when-hsa-reimbursement.jpg)

You can reimburse yourself __anytime__. 

Today, tomorrow, or 20 years from now. The only rule is that your HSA was established at the time that the expense was incurred (date of service). And that the expense was not reimbursed in any other way. 

This is one of the reasons why knowing the exact date of the establishment of your HSA is important. You cannot be reimbursed for expenses that were incurred prior to that date.

Did you know that you can also reimburse yourself for expenses even if you are no longer eligible to contribute to an HSA? That’s because the use of your funds is not tied to HSA eligibility. Once you add money to your HSA, it’s yours. And it can be used at any time in the future.

## Want More Money in Retirement? Reimburse Yourself Later

One of the major financial benefits of an HSA is that you can choose to reimburse yourself anytime. This gives you the opportunity to save the funds in your account. It also provides the opportunity to increase interest earned or provide more time for invested funds to grow.

Many people choose to pay for medical expenses out-of-pocket and reimburse themselves later. Since there’s no reimbursement deadline, you can choose to reimburse yourself years later. Even during retirement.

This requires you to save your receipts and invoices for reimbursement. In the event that you ever get audited by the IRS, they will ask for proof. If you’re unable to provide those records, you would have to pay regular income tax plus a 20% penalty on your reimbursements.

## How HSA Distributions Are Taxed and Reported

![hsa-distribution-tax](//images.ctfassets.net/6j8y907dne6i/1Qp2iGiBLoBkr48xsxV81z/ad237aa0e2034eae881b12050d5fa8c8/hsa-distribution-tax.jpg)

If you use your HSA to buy a qualified medical expense, you will not have to pay income taxes on those funds. If you use your HSA for something other than a qualified medical expense, that distribution is taxable income. And you can be subject to a 20 percent penalty for early withdrawal. When an HSA account holder reaches the age of 65 or becomes disabled, they are no longer subjected to that 20 percent penalty.

In terms of reporting HSA tax information, the HSA trustee or custodian keeps all reports of distributions. The trustee then shares that information to the account owner through IRS Form 1099-SA. HSA account holders are responsible for reporting their own distributions to the IRS through Tax Form 8889. It’s recommended that HSA owners keep records of all their distributions, in the event, they ever become audited by the IRS.

## Reimbursement in Action

### Real-Life Example: When Your HSA is Low in Funds 

James recently got a new job and has a variety of health plans to choose from. He decides on a high-deductible health plan so that he can take advantage of his employer’s HSA contributions. Upon opening his account, he deposits a dollar to establish his account. 

A few weeks after opening his account, James gets into an accident and sprains his ankle. Since he doesn’t have those funds in his HSA yet, he pays for his treatment out-of-pocket. He saves his receipts with a digital receipt organizer, so he can reimburse himself later.

Fast forward to a year from then. James now has enough money in his HSA to pay himself back for those out-of-pocket expenses. Because he kept such diligent records, he was able to reimburse himself with his HSA.

He reports this information to the IRS using IRS Tax Form 8889. If James did not report his distribution to the IRS correctly, the money he withdrew could receive a 20% tax penalty. Since James saved his receipts, he won’t have to pay this penalty. And he receives the tax-free benefits from using his HSA for qualified medical expenses.

### Real-Life Example: Your Savings Strategy

![hsa-reimbursement-wealth-building](//images.ctfassets.net/6j8y907dne6i/6R7cjd9se6Xrgawi2jo8UB/6d65ef236dfdd131080e9af01ae762b8/hsa-reimbursement-wealth-building.jpg)

Juliet is a smart, money-savvy individual and she wants to get the most out of her HSA when she retires. She enrolls in an HDHP for several years and also maxes out her HSA every year. When she needs to pay for a health-related expense, she pays out-of-pocket. She tracks her health expenses by taking pictures of her receipts and logging them into Lively App to reimburse herself later.

Fast-forward to years from now when Juliet is in retirement. Since she hasn’t withdrawn any of the money in her HSA, she was able to earn more interest with her higher account balance. And even earned more through investing some of her funds. 

Juliet has diligently logged years’ worth of glasses, contacts, prescriptions, and other qualified health-related expenses into her account. Which, when added together totals thousands of dollars. She chooses this opportunity to finally reimburse herself for those expenses with her HSA. And uses those funds to help her travel during retirement.

## Reimbursing Yourself For Out-of-Pocket Medical Expenses with Lively

Have a couple of out-of-pocket expenses that you can use your HSA for? Here’s how you can reimburse yourself through the [Lively app](https://livelyme.com/app/):

1. Access your Lively account through our online portal, iOS, or Android App.
2. Navigate to “Transactions” in the menu or click on “+ Expense.”
3. Choose “Add Expense: For purchases made using your personal fund.”
4. Enter the amount of the medical expense, who the merchant/provider was, and the date you made the purchase or started receiving service.
5. Choose “Get Reimbursed Later” or “Process Immediately.” 
6. Add a receipt by taking a photo or uploading an image.
7. Click the “Submit” button.

This process is quick and easy, and you’ll have those funds in your account within 2-3 business days. 

We suggest taking a picture of all of the receipts you have for your healthcare expenses so you can keep them attached to your transactions within your Lively account. Having your information ready to go makes using your HSA simple.






hsa-reimbursement-rules

Learn about HSA reimbursement rules: How to efficiently track expenses in case of an IRS audit, how distributions are taxed, and how to determine whether to delay reimbursements as part of a wealth-building and retirement strategy.

Aaron Benway

Lively Blog

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