take-advantage-health-savings-account

benefits-of-long-term-hsa

hra-vs-msa-whats-the-difference

Kate Dore

using-benefits-wisely

health-savings-account-affects-taxes

best-employee-benefit-packages

trustee-to-trustee-transfer

Human Resources

Employee Benefits

An HSA offers three different tax benefits. This means that you will have to file additional paperwork with the IRS when you do your taxes. Here is some information on the things you will need to share. 

How does a health savings account affect my taxes?

hsa contributions

personal finance

Personal Finance

Kate Dore is a Nashville-based freelance personal finance writer and Candidate for Certified Financial Planner™ Certification. She teaches financial literacy with Junior Achievement and serves as Director of Public Relations for the Financial Planning Association of Middle Tennessee. Her work has been published in Business Insider, Financial Planning Magazine, and Simple Money Magazine.

If you recently changed to an HSA compatible healthcare plan, there are a few things you need to know about how to make your contributions tax-deductible.

How to take advantage of a health savings account deduction

Transferring funds from one account to another can be a hassle - even more so when taxes are involved. What can you do to minimize penalties and headaches? 

Trustee-to-Trustee Transfer vs. Direct Rollover: Which is the Safest?

Health Savings Accounts

Taxes

Benefits

If you're looking for a tax-advantaged accounts dedicated for healthcare, there are a few options to consider. HRAs and MSAs are a couple of those accounts, but what's the difference?

HRA vs. MSA: What's the difference? 

transfers

HSAs are great tools to use not just for short-term health care expenses, but also to help build long-term savings for the future. Here's how using an HSA can benefit you in the long run.

The Long-Term Benefits of Using an HSA

Savings

Employee benefit packages are important tools for recruiting and employee retention. If you're looking for some inspiration for your employee benefit packages, here are a few of the most popular benefits currently being offered.

The Best Employee Benefit Packages

retirement

Health Reimbursement Account

When you're ready to start saving for retirement, it's easy to focus on your 401(k) or IRA. But there's another account you should prioritize, too—your health savings account. These accounts offer three unique tax benefits, along with the opportunity for long-term growth. 

While it's easy to spend health savings account money on your current medical expenses, you may be missing out on the account’s future potential. Before swiping your card for medical expenses, consider these long-term benefits. 

## Max out your health savings accounts every year for tax breaks

As you start earning more money, you may be looking for ways to reduce your family’s taxable income. One way to achieve this is through tax deductions. There are several ways to score a tax deduction, including annual contributions to your health savings account. 

This is considered an “above-the-line” deduction—not to be confused with “itemized deductions”—which happen later on your return. Above-the-line deductions are more popular because you subtract them from your gross income. But if you choose the standard deduction—and most people do, according to the [Urban-Brookings Tax Policy Center](https://www.taxpolicycenter.org/briefing-book/what-standard-deduction)—you won’t be able to claim any itemized deductions.  

With an eligible high-deductible health insurance plan, you can contribute up to $3,550 per year as an individual or $7,100 with a family plan in 2020. You can deduct the full amount on your tax return every year, regardless of how much money your family makes.

## Opportunity to invest and grow the balance

Another benefit of health savings accounts is portability. You can take the entire balance with you when you change jobs, which gives you the ability to grow your balance every year. Some health savings account providers allow you to invest the balance so you can grow your funds even more. 

You can invest and grow the money tax-free and make withdrawals anytime for qualified medical expenses. As you may imagine, you could grow a sizable balance over time if you decide not to spend the money within your HSA. 

For example, let's say you open a health savings account for the first time at 30-years-old. You can use our health savings account [calculator](https://livelyme.com/calculator/) to see how much money you may have after 30 years if you don’t spend any money from it,

If you contribute and invest the maximum amount every year, you could have $199,270 after 30 years, assuming a 4% return. Best of all, you won't owe income taxes on the earnings—or withdrawals—once you need to spend it. Income taxes on investments varies by state, so be sure to check your state laws or consult a tax professional to identify the amount of savings you’ll have.

## Investing vs. spending your health savings account money

When you have a high-deductible health plan, it may feel like a visit to the doctor’s office can overwhelm you. One quick visit to the doctor or small procedure can easily turn into large medical bills—often for hundreds of dollars or more. 

Not everyone can afford to pay out-of-pocket for expenses like these. But if there is any wiggle room in your budget, it could pay off to leave your health savings account untouched. 

By maxing out your contributions every year and investing the balance, you could have a solid nest egg by retirement. Because let’s face it—there’s nothing cheap about healthcare in retirement. The average couple may need $285,000 for healthcare and medical expenses alone, [according to Fidelity](https://www.fidelity.com/bin-public/060_www_fidelity_com/documents/press-release/healthcare-price-check-040219.pdf), so you may be relieved when the money is there.


It's no secret that health care is expensive. The average family spends $8,200 per year—or 11% of their income—on health care, according to the [Kaiser Family Foundation](https://www.kff.org/health-costs/press-release/interactive-calculator-estimates-both-direct-and-hidden-household-spending/). That’s a good portion of a budget for any family. But luckily, tax-advantaged health accounts may offset some of the out-of-pocket costs. Medical Savings Accounts (MSAs) and Health Reimbursement Arrangements (HRAs) are a couple of options to consider. Here's a closer look at each one—including the pros and cons of each type of account.

## Medical Savings Accounts (MSAs)

__The basics:__ Medical savings accounts (MSAs) are a type of tax-advantaged health account. There are two types of MSAs: Archer and Medicare Advantage. Archer MSAs started as a pilot program for small companies in 1996. Health savings accounts (HSAs) arrived in 2003, making MSAs obsolete. Although the MSA program ended in 2007, some companies may still offer their original MSA plans. 

Medicare Advantage MSAs still exist for folks with a Medicare-approved high-deductible healthcare plan. The money may grow tax-free and you can withdraw it to pay for qualified medical expenses.

__How to qualify for an Archer MSA:__ You must be part of a pre-2007 Archer MSA plan. You need to be self-employed or work for a small company with 50 or fewer employees with a high-deductible health insurance plan. Your spouse may qualify, too.

__The benefits of an Archer MSA:__ 

- You can claim a deduction for contributions, even if you don't itemize.
- Earnings grow tax-free.
- Withdrawals are tax-free for qualified medical expenses.
- Your balance rolls over from year to year.
- The account is portable if you decide to change jobs.

__The downsides of an MSA:__ Since January 2008, it's not possible to establish a new MSA.

## Health Reimbursement Arrangements (HRAs)

__The basics__: Health reimbursement arrangements (HRAs) are company-owned plans, funded only by your employer. These contributions are pre-tax, so they won’t be part of your gross income. You can use this money to reimburse yourself for qualified medical expenses. These reimbursements are tax-free. If you don’t spend the balance, you can carry it forward for the future.

__How to qualify for an HRA:__ You may only qualify for an HRA through an employer’s plan. Self-employed folks aren’t eligible for an HRA. 

__The benefits of an HRA:__ 

- Employer contributions aren't taxable income.
- Qualified reimbursements are tax-free.
- You may save the balance for the future.

__The downsides of an HRA:__

- Only your employer can contribute to an HRA.
- Your employer owns the HRA.
- An HRA isn’t portable if you change jobs.

## Seek guidance from a tax professional

Before opening any type of tax-advantaged account, it's important to know the basics. While there may be a wealth of financial information at your fingertips, it's easy to get confused by all the rules to qualify, contribute, or withdraw—especially as the tax code changes. When in doubt, try to work with an experienced tax professional. They may be able to offer specific tips for your family’s unique tax situation. You may rest easier knowing exactly what is allowed, and what may cause trouble at tax time. 



Are you ready for a new health savings account, but nervous about making the switch? It's normal to feel uneasy about the logistics of moving accounts, especially when the stakes are high. One wrong move could trigger an unexpected tax bill—with a costly penalty, to boot. The best way to avoid trouble from Uncle Sam is through a health savings account transfer or rollover. We’ll cover two options to help you decide which is best for you. 

## Pay attention to the 60-day rule

Health savings accounts are popular because of their triple-tax benefits. You can make contributions before taxes, grow the money tax-free, and make withdrawals anytime for qualified medical expenses. But if you use the money for any other purpose, you will have to pay regular income taxes on the withdrawal, plus an extra 20% penalty.

When changing health savings accounts, you'll have the task of moving the money to a new company. Your original provider can send you a check with the balance, but you’ll have to open the new account quickly. As long as the transfer happens within 60 days, the IRS won't consider it a withdrawal. But if it takes any longer, you'll owe income tax and a 20% penalty on the balance.

Luckily, you can bypass this risk—and avoid a mandatory 20% tax withholding from your original company—by completing a trustee-to-trustee transfer. 

## What is a trustee-to-trustee transfer?

Changing from one health savings account to another is a major decision. When you're finally ready to move the money, you can do it with a trustee-to-trustee transfer. This is one way to avoid the risk of taking longer than 60 days to move the money—and paying income tax and penalties on the transaction.

With a trustee-to-trustee transfer, your first health savings account provider makes a direct payment from your original account to the new one. The transaction will be faster than depositing the money yourself with a direct rollover. Plus, there won't be a mandatory 20% tax withholding.

## What is a direct rollover?

A direct rollover, which involves receiving a check, is another way to move the money. This can be a hassle, because it is noe entirely in your responsibility to transfer these funds to a new provider - which can easily be forgotten. 

Once you receive the check, it's your responsibility to deposit the money within 60 days. If you miss the deadline, you can expect to pay income taxes plus a 20% penalty on the remaining balance. If you decide to take the risk of a direct rollover, contact your health savings account provider for the complete instructions.  

## Which option is the safest?

While it may be tempting to do it yourself, it's always better to rely on a trustee-to-trustee transfer. Not only will it happen faster, but you can skip the frustration of a mandatory 20% tax withholding. Plus, you may rest easier knowing the task of moving the money is out of your hands.


Winning the lottery is the ultimate get rich quick fantasy. You may dream of ways to spend the money, even before hitting it big. Your new home, fancy car, trendy wardrobe, or luxury vacation may be top priorities—but not before the IRS takes their cut.

Earning money means the government wants their share, except when it comes to health savings accounts. These accounts offer triple tax benefits—making them the unicorn of the tax world. 

If you have a high-deductible health insurance plan (HDHP), you are eligible to contribute to an HSA. Here's everything you need to know about health savings accounts and how they may affect your taxes.

## How to save on taxes with a health savings account

While budgeting with a high deductible health plan may seem like a challenge, partnering them with health savings accounts (HSA) can ease that burden. HSAs help those with HDHPs by offering them three specific tax savings:

### 1. Health savings account funds are contributed pre-tax.

When you contribute to your HSA, the money goes in before you pay taxes. A portion of your paycheck goes into your HSA and then you pay taxes on the rest of your income. This strategy lowers your taxable income. If you choose to contribute to your HSA post-tax, those contributions are tax deductible. 

__Note:__ *Qualified medical expenses—which you may deduct on your tax return if you itemize deductions and exceed 10 percent of your adjusted gross income—are different than HSA contributions. HSA contributions are an adjustment to gross income and are always allowed, whether you choose to itemize or not.*

### 2. Health savings account investments grow tax-free.

One of the perks of your health savings account is the balance carries over from year to year. This offers the unique opportunity to grow your money for the future. Another perk of the HSA is that you can invest the funds within your account without paying taxes - even for the invested portion! Many HSA providers partner with investing partners so you can easily manage your funds in one place.

### 3. Health savings account withdrawals for qualified medical expenses are tax-free.

As long as you withdraw the money for qualified medical expenses, you won’t have to pay federal income tax on your earnings. This is different from a brokerage account, where you may owe capital gains tax.

__Note:__ This applies to federal income taxes only. Every state treats health savings accounts differently, so it’s important to [check your state tax laws](https://thehsareportcard.com/the-hsa-report-card-1/2017/12/2/any-bank-basiconlinecom) regarding the matter. 

These breaks may offer a significant amount of income tax savings. Let's say you're a single taxpayer earning $100,000 per year. If you contribute the maximum amount to your HSA, you could save $840 on income taxes for the year. Couples earning $100,000 and contributing to the limit may save $1,500 on federal taxes each year. 

The exact amount of savings depends on your income, tax brackets, family size, and HSA contributions. Either way, your health savings account could lead to major income tax savings, and these tax benefits may add up to thousands of dollars over the course of your lifetime.

## The downsides of a health savings account
HSAs may seem too good to be true. The problem is, not everyone has the right type of health care plan to qualify. You must have an eligible high-deductible health plan (HDHP) to contribute to your HSA, and once you apply for Medicare at 65, you will no longer be eligible to contribute.

You may score lower monthly insurance premiums with a high-deductible health plan. But your deductible will be higher than other plans—at least $1,400 for individuals and $2,800 for family coverage in 2020. 

HSAs offer the opportunity to save money for healthcare expenses in retirement. The low annual contribution limit could make it difficult to build a large nest egg, which is why it shouldn’t be your only retirement account. For the 2020 tax year, the annual HSA contribution limits are $3,550 for an eligible individual and $7,100 for a family. There's also a $1,000 catch-up contribution for folks 55 and older.

Instead, consider it like an individual retirement account (IRA). These plans also have lower contribution limits, but may still be an excellent supplement in retirement. You should talk to your financial advisor for in-depth retirement planning advice.

Another downside of a health savings account is you must use the money for qualified medical expenses. There are plenty of things that qualify—like visiting the doctor, going to the hospital, dental expenses, and medications. They can also be used for things such as eyeglasses, orthodontics, and acupuncture. 

The final drawback is record-keeping. It’s important to save copies of your receipts for qualified medical expenses throughout the year. You will have to submit Form 8889 with your tax return for a record of your HSA contributions and withdrawals. Some of this will be available on your W-2 from your employer. You’ll also receive Form 1099-SA from your plan administrator. You can see the complete details at [IRS Publication 969 here](https://www.irs.gov/forms-pubs/about-publication-969).

## Should I open a health savings account (HSA) or flexible spending account (FSA)?

It's easy to get confused by the differences between HSAs and FSAs. These two medical savings accounts have a similar name but there are some key differences. You're more likely to see an FSA, especially if you work for a small business. If you do, here are some of the key characteristics to watch for.

<ul>
 <li>You don’t need a high-deductible health insurance plan for an FSA. To qualify for an HSA, you must have an eligible high-deductible health insurance plan (HDHP). Luckily, FSAs don't have the same strict eligibility rule.</li> 
 <li>Your employer owns your FSA. You can't open an FSA without your employer, which isn't the case with an HSA. The downside of opening your own HSA is you won’t qualify for a tax deduction because your contributions will be after taxes.</li>
 <li>FSAs don’t allow you to maintain a balance from year to year. FSAs are more restrictive than HSAs. You can’t roll over tax-exempt money from year to year. Depending on your employer, you may have one of two options: roll over $500 or have a grace period of two and a half months to use the money.
 <li>FSAs have a lower annual contribution limit. Another downside of FSAs is the lower annual contribution limit. On the plus side, this may make it easier to spend the money on qualified expenses before the deadline.</li>
 <li>Both FSAs and HSAs are different from an HRA. A Health Reimbursement Account (HRA) is a plan that reimburses employees for the out-of-pocket medical expenses (and sometimes their plan premiums) when they make qualified medical expenses. While you may be reimbursed for qualified expenses like an FSA or HSA, you are unable to manage those funds as you would with those accounts.</li>
</ul>

## Take advantage of tax savings with an HSA.

If you choose to go with a high-deductible health plan, don't skip the opportunity to pair it with an HSA. Even if your company doesn't offer one, there are plenty of providers you can choose from. You can check major financial institutions or online options like Lively. Our plan stands out with no fees, competitive investment options, and a world-class user experience.

After ringing in the New Year, you may be ready for a fresh start with your money. Sticking to a budget, saving more, and paying off debt are all worthy resolutions. You should also prepare for your income tax return. It may be tempting to ignore it until April, but putting it off could increase your chances of mistakes.

By starting earlier in the tax year, you may uncover more opportunities for federal tax deductions. If you qualify, consider opening a health savings account. You may be eligible for a deduction on your federal income tax return, which could mean paying less in taxes to the Internal Revenue Service (IRS). Here's what to know about the health savings account deduction—and how to get ahead for next year's tax season.

## How to qualify for a health savings account contributions

If you have a high-deductible health insurance plan, you may have already experienced some costly medical bills. These out-of-pocket expenses can be tough to predict—especially when you receive the bills weeks or months after seeing the doctor. The unpredictability can make a high-deductible health plan difficult to budget for.

One way to soften the financial blow is by opening a health savings account. These accounts offer three ways to save on taxes—but you will have to qualify every year to make annual contributions. Here are some guidelines to keep in mind.

## You need an HSA-eligible high-deductible health plan (HDHP).

Not all high-deductible health insurance plans are HSA-eligible. Before making any contributions, you should check with your insurer to make sure your plan qualifies. Otherwise, you may have to answer to the IRS later.  

You need to have insurance coverage with an annual deductible of at least $1,350 for an eligible individual or $2,700 for family coverage in 2019. These amounts may adjust every year. As an individual, you won’t pay more than $6,750 for out-of-pocket expenses with in-network providers. The maximum out-of-pocket for a family plan is $13,500.

Your high-deductible health plan may cover some preventative care before you meet the deductible. This may include things like annual physicals, immunizations, and screenings for cancer or heart disease.

## You must have a private insurance plan

You won’t qualify for health savings account contributions if you’re currently enrolled in Medicare. You need to have an employer-provided high-deductible health plan—or one of the Marketplace plans through the Affordable Care Act.

## You can’t be a dependent on someone else’s tax return.

If you’re considered a dependent on your  another person’s tax return, you won’t qualify for health savings account contributions.

## If you make contributions, you may qualify for a tax deduction

Once you qualify for health savings account contributions, you may also be eligible for a tax break. There are two ways to get a deduction for putting money into your HSA account.

If your employer makes a contribution, the money goes into your health savings account before income taxes. This means it won't be part of your gross income—and you won't owe federal income tax for your employer’s contribution. You should check to see how your state treats health savings account contributions, though. There may be different state-level tax laws.

You can also deposit money into your health savings account after paying income taxes. The HSA contribution will still impact your taxable income because your deposit is tax-deductible. To claim the tax deduction, you can submit Form 8889 with your tax return. 

The maximum 2019 contribution is $3,500 for individuals and $7,000 for families. You may also qualify a $1,000 catch-up contribution if you're 55 or older, too.

If you're self-employed and own a small business, you may also benefit from a health savings account—and the perks that come with it. You should speak with a tax professional to see which type of plan is the best fit for your company's health insurance. Your company may be eligible for tax savings from a health savings account or a medical savings account.

## Health savings accounts offer additional tax savings

Tax deductions are one reason for health savings accounts’ popularity. But there are more perks than your tax-deductible HSA contributions. You may also enjoy two additional tax advantages, as well.

The second benefit of your health savings account is tax-free growth. If your health savings account allows you to invest, you won't owe income taxes on your earnings. Your HSA balance rolls over every year, and there is no deadline to use the money. If you contribute and invest every year, you could amass some extra retirement savings.

The third health savings account perk is tax-free withdrawals. You can use the money anytime for qualified expenses. These may include out-of-pocket health care costs like seeing the doctor or dentist. You may also use HSA funds for prescriptions, hospital visits, co-insurance, and co-payments.

## Watch for these health savings account rules

Health savings accounts can be a great deal if you follow the IRS guidelines. You may avoid paying income tax or a tax penalty by following these rules.

- __Stick to your annual HSA contribution limit.__ It may be tempting to deposit extra money for a bigger tax deduction—but this could be a costly mistake. It’s up to you to keep track of your contributions every year. Be careful to stay within the annual limit, or you may owe an excise tax of 6%. You can avoid this penalty by withdrawing the extra contribution money by your tax deadline.
- __Only withdraw money for qualified medical expenses.__ You can spend HSA money or reimburse yourself for qualified medical expenses anytime. But if you withdraw money for something else, you may have to pay income tax—plus a 20% penalty. Once you turn 65, you won't owe the 20% penalty for non-qualified withdrawals. 

## Save on taxes with a health savings account

There's nothing like the triple-tax advantage of a health savings account. You may qualify for annual tax deductions, tax-free growth, and tax-free withdrawals—which can be a powerful combination. It's a great way to reduce your taxes while also saving for future health care costs.


For most employees, compensation is a lot more than a competitive salary. With the country’s unemployment rate hovering around [3.5 percent](https://www.bls.gov/news.release/pdf/empsit.pdf) , competition for the best talent is fierce. Top employees may expect to receive popular benefits like health insurance, paid time off, retirement savings plans, wellness and family benefits, and more. If you're planning to add team members in 2020, it may be time to review your employee benefits package—and see how it stacks up against your competitors. These are some of the most popular benefits to consider.

## Health Insurance

If you're looking to attract top talent, your company’s health insurance plan must be a priority. Fifty-five percent of employees say it's the most important benefit, according to a [recent survey from Clutch](https://clutch.co/hr/resources/employers-should-offer-health-insurance-employee-benefits).

Most companies have a health insurance plan, with 85 percent offering PPO plans, according to [SHRM’s annual employee benefits report](https://www.shrm.org/hr-today/trends-and-forecasting/research-and-surveys/Documents/SHRM%20Employee%20Benefits%202019%20Executive%20Summary.pdf). But high-deductible health plans (HDHPs) are also gaining popularity. More than half of companies offer their employees at least one HDHP option.

High-deductible health plans can be more expensive for employees, so many companies pair them with a health savings account (HSA) or a flexible spending account (FSA). These accounts give employees the option to save pre-tax money for out-of-pocket medical expenses.

## Retirement Plans

Many employees worry about their financial future. But luckily, most companies offer ways to save and invest for retirement. Ninety-three percent of employers offer a traditional 401(k) plan and almost two-thirds offer their employees a matching contribution. They may also offer investing and retirement planning advice. One in five companies even offers credit counseling for their employees.

## Paid Time Off

Work-life balance is a priority for many employees. Almost all companies offer some type of paid time off and sick leave. And companies of all sizes are offering employees the chance to work from home. More than one-quarter of companies allow full-time employees the option to telecommute. It's also becoming more common to offer flexible work hours.

## Wellness and Family Benefits

Although employees appreciate family and wellness benefits, most companies haven't been increasing their budgets to pay for them. But these benefits are often low cost, and may be worth considering. Fifty-eight percent of companies offer some type of wellness program. Investing in these programs may pay off. According to SHRM, they have a proven track record for improving certain health conditions and fitness levels. 

Companies also offer a number of family-friendly benefit options. Twenty-five percent of companies allow parents to bring their kids to work during an emergency. Some also offer discounted child care or referrals for providers. There has also been an uptick in services for mothers like on-site lactation rooms and support services. Some companies offer programs to assist parents who are returning to work. Elder-care benefits are growing, but still not prevalent at most companies.

## Be proactive with your company's employee benefits package

As competition heats up, it's important to consider your company's total compensation package. Providing the best employee benefits package offers more than bargaining power. You may also experience greater levels of job satisfaction and higher retention rates. 
