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discover "what is a high deductible health plan?"

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the six differences between hsas and fsas

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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

Healthcare

FSA Eligible Items

In your 30s, tax planning is one way to keep your priorities in check. Here are a few things you should focus on.

How to Approach Taxes in Your 30s

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)?

While still a tax-advantaged account like an HSA, FSAs do not easily rollover year to year. There are two different options you have in regards what you can do with your FSA at the end of the year, and we detail both in this article.

Does My Flexible Spending Account (FSA) Rollover?

Having a baby is a momentous occasion. Some parents are surprised by any higher hospital bill.

The Cost of Childbirth﻿

Open Enrollment

HSAs and FSAs are often used for ancillary health needs, such as glasses and dentistry, but did you know you can use these accounts for day-to-day health needs as well? We discuss what household items you can stock up on with your HSA or FSA here. 

Using your FSA or HSA for At Home Wellness

Being your own boss has a ton of benefits, the only drawback is when it comes to health benefits, you're on your own

The Self-Employed Person’s Guide to Buying Health Insurance

HSA Account Rules

Series: Common Healthcare Costs

Lauren Hargrave is a writer from San Francisco who focuses on technology, finance and wellness. She follows comedians like most people follow bands and believes an outdoor sweat session can cure almost any bad mood. She’s also been writing her first novel for so long, her mom doesn’t ask about it anymore.

Lauren Hargrave

Employee Benefits

Marriage

A DCFSA is a flexible spending account that allows you to set aside money from your paycheck, pretax, in order to pay for child or adult day care services. In this article, we discuss how exactly a dependent care FSA works. 

How Does a Dependent Care FSA (DCFSA) Work?

 Discover what expenses are eligible for a Healthcare FSA, Dependent Care FSA, and Limited-Purpose FSA. And which FSAs can work paired with a Health Savings Account (HSA).

Common Flexible Spending Account (FSA) Eligible Items

While you’re researching health insurance, you’re going to come across a new lexicon that seems entirely foreign to you. 

Health Insurance Basics

Health Insurance

Personal Finance

The employer market is competitive, and companies are striving to attract the best talent. What can HR teams do to offer competitive benefits?

Common Employee Benefits Mistakes HR Departments Make

CDHP (Consumer Driven Health Plan)

Getting married is an exciting endeavor, but before you say I do, there are some serious financial discussions you should have with your partner.

8 Financial Discussions to Have Before Marriage

have or was offered job-based insurance?

If your employer is offering you healthcare, congratulations!  Hopefully that means they’re also sharing some of the cost.

The Employee’s Guide to Buying Healthcare

FSA (Flexible Spending Account)

"What is an FSA?" Discover which FSA is right for you & how pre-tax contributions could save you thousands each year.

What is a Flexible Spending Account (FSA)?

HSAs and other health focused savings account have major tax benefits - but that also means that there are certain forms that you need to be aware of when filing your taxes. Tax Form 5498 is one of those forms you may be wondering about.

What is Tax Form 5498?

am unemployed?

HSA Max Contributions

According to Healthcare Bluebook, hip replacement surgery can cost you anywhere between $23,203 and over $74,000.

How Much Does a Hip Replacement Cost?

Employers can sponsor Flexible Spending Accounts so employees can use pre-tax funds to pay for certain expenses no covered under health insurance. There are different types of FSAs that cover different types of purchases, and we discuss those here. 

3 Key Types of Flexible Spending Accounts (FSA) 

If you overcontributed to your HSA, you will need to fill out Tax Form 5329 before tax day. There are a couple of ways you can avoid having to fill out this form - and we discuss them here. 

What is Tax Form 5329?

According to the ACA, insurers are allowed to take the following five factors into consideration when calculating your premium. We will review them.

Average Cost of Health Insurance for Single Women 

If you’ve lost your employer health plan, or if you’re self-employed, unemployed, or your employer doesn’t offer healthcare, you’ll need to purchase a health plan on your own.

Your Guide to Buying Individual Health Insurance

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

The cost of breast cancer varies widely so it’s best to work with your doctor to ensure you’re getting effective treatment that’s also affordable.

The Cost of Breast Cancer

If you have an IRA, you can use those pre-tax funds to contribute to an HSA. However, there are some technicalities to transferring your accounts. Here are a few things you need to consider to avoid tax penalties.

How You Can Use Your IRA to Fund Your HSA

Although the HSA and FSA are both tax-advantaged accounts, they are more different than similar. Discover the difference between an HSA and FSA: how you qualify, account ownership, portability, functionality, contribution limits, and rollovers. 

What is the Difference Between an HSA and FSA?

Dependent Care FSA

Financial Health

Flexible Spending Account Rules

If you’ve decided that when it comes to your healthcare, choice in doctor and hospital is important, then you’ve probably also decided against an HMO. 

HDHP vs. PPO Health Insurance

As you get closer towards retirement, your healthcare needs may change. Here are a few things you should consider in terms of healthcare as you move closer towards your golden years to make the most of your retirement.

How to Choose Health Insurance When Nearing Retirement

Taxes

While salary is a major consideration when applying for a job, additional employer benefits can outweigh salary in importance. What ARE those benefits? We discuss those benefits here. 

Important Benefits to Consider When Applying for a Job

Choosing healthcare for yourself is already a challenge - so what about deciding what healthcare is right for your entire family? We discuss three key points that you should consider when choosing the right health insurance to cover your children. 

How to Choose the Best Health Insurance for Your Children

Benefits

qualify for Medicare?

Cardiac bypass is the most common type of heart surgery performed on adults in the US. The average cost of bypass surgery in the US in 2018 was $123,000.

What will you be for coronary artery bypass surgery?

just had a baby or adopted?

More than 720,000 Americans have knee replacements each year. These costs are also becoming more common. With that in mind, how much will it cost you?

The Cost of Knee Replacement Surgery

In challenging times with a high level of uncertainty, it's important to maintain your mental health in addition to your physical health. We discuss a few strategies here that can help you maintain your mental health. 

Utilizing Mental Health Benefits in Uncertain Times

am married or getting married?

Want to take advantage of the savings opportunities offered by a Health Savings Account? The first step is to ensure you’re eligible to open an account. Discover the HSA eligibility requirements. 

HSA Eligibility Requirements: Discover if You’re Eligible 

Evaluating a company's benefits is an important way to consider if you would want to be their employee. What do you need to consider in terms of benefits?

How to Evaluate a Company’s Benefits

When you're looking at the benefits an employer provides, you want to choose what's best for your family. Family health coverage can actually be expensive.

Family Health Coverage is the Costliest Employer Benefit (for the Employee)

The average premium for a single male in 2018 was $418 per month for plans purchased through the healthcare marketplace and $118 for an employer-sponsored plan.

Average Cost of Health Insurance for Single Men

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? 

Healthcare Benefits

Families come in all shapes and sizes - and your health plan should fit your family accordingly. If you're a single parent, here are a few things you should consider when choosing a health plan for your family. 

How to Choose a Health Insurance Plan as a Single Parent

High deductible health plans (HDHP) are by far the most affordable option for healthcare from a monthly premium standpoint. 

Expected HDHP Costs

Avoid penalties. Know the Flexible Spending Account rules for Healthcare, Limited Purpose, and Dependent Care FSAs. 

Flexible Spending Account (FSA) Rules

Per the Kaiser Family Foundation, families on average contribute $452 in healthcare premiums each month.

Average Cost of Health Insurance for a Family

Tax Form 8889 is an essential form to send for HSA reporting. If you have contributed to an HSA in 2019, you will need to fill out Tax Form 8889 to submit with your income taxes. 

What is Tax Form 8889?

If you've never had to file taxes before, it might be scary trying to figure out where to begin. We've compiled some basic information to help you get started on filing your first tax return.

How to File Your Taxes for the First Time

HDHP (High Deductible Health Plan)

Becoming unemployed can be an incredibly stressful time. If you're unsure of what is going to your healthcare while you are unemployed, here are a few things you can do to ensure you will have access to healthcare during this time. 

What Happens to My Healthcare When I Become Unemployed?

While you’re comparing the different types of health plans out there, you might come to a confusing crossroad: the difference between an HDHP plan and every other plan out there. 

HMO vs. HDHP Health Insurance

am self-employed?

Employee Health Insurance

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

Retirement Planning

While family health insurance used to cover only legal marriages and dependents under employee benefit packages, this is not the case now. Here are the options you have for healthcare when you're in a domestic partnership.

How to Choose Health Insurance When in a Domestic Partnership

HSA Eligible Expenses

COVID-19

You'll receive a 1099-SA form if you distributed any funds from your HSA within the previous year. There are also a few other special considerations as to why you would receive this form. Learn more about what is on a 1099-SA and how you should use it. 

What is Tax Form 1099-SA?

Employer Health Insurance

Are you wondering “What happens to my HSA when I die?” The rules governing your HSA depend on your chosen beneficiary. You have four beneficiary designation options. Choose wisely because each choice carries a unique tax obligation. 

What Happens to My HSA When I Die? Choosing A Beneficiary

Employees now want benefits personalized to their needs so that they can gain the most value out of them. How is that going to change in the future?

The Future of Employee Benefits

HSA (Health Savings Account)

As long as you retire before the age of 65, you can still contribute to your HSA post-retirement. However, as soon as you hit the age of 65, you are no longer allowed to contribute to your HSA. 

Can I Still Contribute to My HSA After Retirement?

“Is an FSA worth it?” Discover how you can save up to 30% on the medical, dental, vision, or care services they cover. 

Is an FSA Worth it? Benefits of a Flexible Spending Account

HSA Tax Forms

have children?

__Editor’s note:__ An earlier, and shorter version of this [blog post](https://livelyme.com/fsa-rules) was previously published. We published this update because the rules aren’t complicated, but knowing them will prevent you from incurring penalties or losing your Flexible Spending Account contribution. 

---

Flexible Spending Accounts (FSAs) are an excellent way to help you save for anticipated medical, dental, and vision expenses. As well as dependent care costs.

Like all tax-advantaged accounts, the IRS has rules and regulations on how FSAs function. Especially about who can contribute and how much. And what those contributions can be used for. As you’ll see, the Flexible Spending Account rules aren’t complicated. But you will need to follow them to avoid incurring a penalty or losing any of your contributions.

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

Let’s start with the basics. A [Flexible Spending Account](https://livelyme.com/what-is-an-fsa) (FSA) is a spending account. It allows you to contribute tax-free money to pay for eligible medical, dental, vision, or dependent care expenses. Depending on the type of account you have.

The three most common types of FSAs are the [Healthcare FSA](https://livelyme.com/what-is-a-healthcare-fsa) for medical expenses. A [Limited Purpose FSA](https://livelyme.com/what-is-a-limited-purpose-fsa) is for dental and vision expenses. And the [Dependent Care FSA](https://livelyme.com/what-is-a-dependent-care-fsa) is for expenses associated with child and adult day care.

## Where Do I Sign up for an FSA?

FSAs are employer-based plans. Typically you set up an FSA when you begin a job or during the yearly open enrollment period. The only other time would be after a qualifying event like a marriage, birth, or death of a dependent, among others. Unfortunately, those who are self-employed aren’t eligible for an FSA.

### How Do I Contribute to an FSA?

![how-to-contribute-fsa](//images.ctfassets.net/6j8y907dne6i/3o3FNi4tkdIAls8qsIlAqK/4daba479c88e41b2b97d905a51b582a6/how-to-contribute-fsa.jpg)

When you elect to participate in your employer’s FSA, you can choose how much you want to contribute for the year up to the applicable IRS annual contribution limit. Then, your employer will deduct the appropriate amount from each paycheck and deposit that money in your FSA. Your employer can also choose to contribute to your FSA, but they aren't required to.

*__Each type of FSA has its own contribution limit. For 2021 the limits are as follows:__*

__Healthcare FSAs:__ $2,750. Healthcare FSA contributions work on an individual basis. So each spouse in the household can open their own FSA if it's offered by their employer. And each spouse can contribute up to the 2020 contribution limit. That’s a maximum of $5,500 per married couple.

__Limited Purpose FSAs:__ $2,750. Limited Purpose FSAs also work on an individual basis. As such, both spouses must open their own accounts through their respective employers. A married couple can contribute a maximum of $5,500.

__Dependent Care FSAs:__ $5,000. Dependent Care FSAs function differently. Contribution limits are determined by household and tax filing status. If you are a married couple who files jointly, you may open one Dependent Care FSA and contribute up to $5,000 into that account. 

If you file separately from your spouse, you may open two separate accounts. Provided you’re both given the option through your employers. And contribute up to $2,500 in each account. If you and the other parent of your child(ren) are divorced or separated, only the parent with primary custody of the children may open and contribute to a Dependent Care FSA.

The IRS typically ties contribution limits to inflation and as such, they are subject to change annually.

## What Can I Use My FSA For?

![what-can-use-my-fsa-for](//images.ctfassets.net/6j8y907dne6i/5WYsobWEzzZqmrqStUWFct/0075e5c302c0945232d23e18ee2538b7/what-can-use-my-fsa-for.jpg)

A [Healthcare FSA](https://livelyme.com/what-is-a-healthcare-fsa) is set up to help you use pre-tax dollars to pay for medical expenses. For you, your spouse, and your dependents. 

Qualified medical expenses include but are not limited to:

- Copays
- Coinsurance
- Deductibles
- Prescriptions and over the counter drugs
- Transportation costs (to and from medical appointments)
- Emergency care
- Medical supplies like [crutches](https://fsastore.com/SearchProducts.aspx?q=crutches&utm_source=Lively&utm_medium=TPA+Public+Proprietary+EL&utm_campaign=TPA+Partner), [bandages](https://fsastore.com/SearchProducts.aspx?q=bandages&utm_source=Lively&utm_medium=TPA+Public+Proprietary+EL&utm_campaign=TPA+Partner), [first aid kits](https://fsastore.com/SearchProducts.aspx?q=first+aide+kit&utm_source=Lively&utm_medium=TPA+Public+Proprietary+EL&utm_campaign=TPA+Partner), and more
- [Sunscreen](https://fsastore.com/SearchProducts.aspx?q=sunscreen&utm_source=Lively&utm_medium=TPA+Public+Proprietary+EL&utm_campaign=TPA+Partner)
- And more from the [FSA Store](https://fsastore.com/FSA-Eligibility-List.aspx?utm_source=Lively&utm_medium=TPA+Public+Proprietary+EL&utm_campaign=TPA+Partner)

A [Limited Purpose FSA](https://livelyme.com/what-is-a-limited-purpose-fsa) allows you to use your contributions to pay for dental and vision costs. For you, your spouse, and your dependents. 

These expenses include but are not limited to:

- Vision exams
- Dental exams
- Teeth cleaning
- Treatment for cavities, crowns, root canals, and more
- [Eyeglasses](https://contacts.fsastore.com/glasses-s/574.htm&utm_source=Lively&utm_medium=TPA+Public+Proprietary+EL&utm_campaign=TPA+Partner)
- [Contact lenses](https://contacts.fsastore.com/?utm_source=Lively&utm_medium=TPA+Public+Proprietary+EL&utm_campaign=TPA+Partner)
- And more from [FSA Store Optical](https://contacts.fsastore.com/?&utm_source=Lively&utm_medium=TPA+Public+Proprietary+EL&utm_campaign=TPA+Partner)

A [Dependent Care FSA](https://livelyme.com/what-is-a-dependent-care-fsa) helps you pay for any type of dependent care that allows you to work. Or look for paying work. No volunteering allowed. 

Here are a few examples:

- Daycare and after school care for children under age 13
- In-home assistance, medical care, or nursing home care for a disabled or ill spouse. And in-home care, nursing home, or childcare for disabled or severely ill children of any age
- In-home caretaking, medical care, or senior home care for a disabled or ill parent
- Summer day camps and programs (no overnight camps)
- Adoption assistance

## Can I Contribute to Another Tax-Advantaged Account in Addition to This One?

![contribute-tax-advantaged-account](//images.ctfassets.net/6j8y907dne6i/1ASxlCzgiMGu1fRhyg7IBC/44dd9e9607814a029ade5d43b78a4e0c/contribute-tax-advantaged-account.jpg)

No. And yes. If you have an active [Health Savings Account](https://livelyme.com/what-is-hsa) (HSA), you will have to stop contributing to that account before taking advantage of your employer’s Healthcare FSA.

There's good news though. You can still use previous HSA contributions while you’re actively contributing to a limited purpose or dependent care FSA. You just can't add any contributions while using a Healthcare FSA. Or, you can save your already contributed HSA funds for the future and use your Healthcare FSA contributions for more immediate expenses.

You can, however, contribute to an active HSA and have an active Limited Purpose FSA or Dependent Care FSA. Because these two account types are not healthcare-related there isn’t a conflict. Remember, you __can’t__ contribute to an HSA and have an active Healthcare FSA. But you __can__ have an HSA and Limited Purpose FSA or Dependent Care FSA.

## You Must Use It, or You’ll Lose It

One thing to keep in mind with FSAs is that they are a “use it or lose it” option. That means funds can only be used __during the calendar year they are contributed__. If you have money left in your account at the end of your plan year, you lose what remains.

Employers have the option to offer employees one of two solutions for left-over contributions. But are not required to do so. They can either offer an [FSA rollover](https://livelyme.com/flexible-spending-account-fsa-rollover) option where you can roll up to $500 from your 2019 account into your 2020 account. This increases to $550 from 2020 into 2021. Or they can offer a 2.5 month __grace period__ that allows you to spend your FSA money for up to 2.5 months after the plan year ends. That’s usually March 15.

If you decide to participate in your employer’s plan, you’ll want to take some time to map out your future expenses. This way, you'll be sure to contribute the right amount.

Does your employer offer an FSA? And is the option to use pre-tax money to pay for medical, dental, vision, or dependent care expenses attractive to you? Ask about the details of your employer’s plan. The pretax nature of these accounts can lead to significant savings. And it’s always nice to know you have money socked away for when you need it.


__Editor’s note:__ *An earlier, and shorter version of this [blog post](https://livelyme.com/what-are-the-benefits-of-an-fsa) was previously published. We published this update because knowing whether an FSA is worth it for you is the vital first step to taking advantage of their tax and cost savings.*

---

A [Flexible Spending Account](https://livelyme.com/what-is-an-fsa) (FSA) has benefits you want to pay attention to. These accounts use pre-tax money, from your paycheck, that you can use to pay for medical, dental, or vision care costs. Or child or adult day care services that allow you to work or look for work. The types of expenses that you can pay for with your FSA contributions will depend on the type of FSA plan you have.  

Unlike a [Health Savings Account](https://livelyme.com/what-is-an-fsa) (HSA), you don't need to buy a specific health insurance plan to open an FSA. In fact, you don’t have to maintain a health plan at all. But, your FSA must be offered through an employer-offered benefits program; you must not be eligible for Medicare, and if you have a Healthcare FSA you cannot contribute to an [HSA](https://livelyme.com/hsa-guide) at the same time.

## Tax Benefits of a Flexible Spending Account

Regardless of the FSA account type, their pre-tax nature can result in many financial benefits. First, depositing pre-tax money from your paycheck lowers your gross income. By doing this, you can even lower your tax rate. Of course, this depends on where your annual income falls within your tax bracket.

Since your FSA contributions are pre-tax, the medical, dental, vision, or dependent care expenses also cost you less. That is when compared to paying for these expenses with after-tax income. This means you can *__save up to 30%__* on those expenses, depending on your tax bracket.

## What Can I Buy with My FSA?

![what-to-buy-fsa](//images.ctfassets.net/6j8y907dne6i/3zkSeX2KGdUfvxQq9iRrwE/89c856617947bcf09aa8ca77a98c9afd/what-to-buy-fsa.jpg)

The types of eligible expenses your FSA contributions can pay for depending on the FSA account type. The three most common FSAs are [Healthcare FSA](https://livelyme.com/what-is-a-healthcare-fsa), [Limited Purpose FSA](https://livelyme.com/what-is-a-limited-purpose-fsa), and [Dependent Care FSA](https://livelyme.com/what-is-a-dependent-care-fsa). Here are examples of out-of-pocket costs that you can pay for with your contributions. Broken out by account type.

### Healthcare FSA

You can use your FSA contributions to pay for expenses for yourself, your spouse, and your dependents. This list is just an example of the qualified medical expenses for which you can use your [Healthcare FSA](https://livelyme.com/what-is-a-healthcare-fsa) contributions. For a complete list, read “[Common Flexible Spending Account (FSA) Eligible Items](https://livelyme.com/flexible-spending-account-fsa-eligible-items).” 

- Copays
- Coinsurance
- Deductibles
- Prescriptions 
- Emergency care
- Medical supplies like [bandages](https://fsastore.com/SearchProducts.aspx?q=bandages&utm_source=Lively&utm_medium=TPA+Public+Proprietary+EL&utm_campaign=TPA+Partner), [antiseptic wash](https://fsastore.com/SearchProducts.aspx?q=antiseptic%20wash&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), [first aid kits](https://fsastore.com/SearchProducts.aspx?q=first%20aid%20kits&utm_source=Lively&utm_medium=TPA+Public+Proprietary+EL&utm_campaign=TPA+Partner), and more
- Medical aids like [crutches](https://fsastore.com/SearchProducts.aspx?q=crutches&utm_source=Lively&utm_medium=TPA+Public+Proprietary+EL&utm_campaign=TPA+Partner), [hearing aids](https://fsastore.com/SearchProducts.aspx?q=hearing%20aid&utm_source=Lively&utm_medium=TPA+Public+Proprietary+EL&utm_campaign=TPA+Partner), and more
- Over-the-counter drugs. Due to the CARES Act, these no longer need a prescription.
- [Insulin](https://fsastore.com/SearchProducts.aspx?q=insulin&utm_source=Lively&utm_medium=TPA+Public+Proprietary+EL&utm_campaign=TPA+Partner) refills. No prescription needed.
- Acupuncture
- [Acupressure mats](https://fsastore.com/SearchProducts.aspx?q=accupressure&utm_source=Lively&utm_medium=TPA+Public+Proprietary+EL&utm_campaign=TPA+Partner) and other tools
- [Sunscreen](https://fsastore.com/SearchProducts.aspx?q=Sunscreen&utm_source=Lively&utm_medium=TPA+Public+Proprietary+EL&utm_campaign=TPA+Partner)
- [Menstrual care products](https://fsastore.com/SearchProducts.aspx?q=menstrual%20care&utm_source=Lively&utm_medium=TPA+Public+Proprietary+EL&utm_campaign=TPA+Partner). The CARES Act added these to the list of “qualified medical expenses.”
- Anything on the [FSA Store](https://fsastore.com/?utm_source=Lively&utm_medium=TPA+Public+Proprietary+EL&utm_campaign=TPA+Partner)

### Limited Purpose FSA (for vision and dental care)

Limited Purpose FSAs can be active at the same time as an HSA. Taking advantage of both could give you a way to pay for vision and dental expenses using your FSA while saving your HSA money for the future.

- Copays
- Coinsurance
- Deductibles
- Teeth cleaning
- Vision tests
- Dental procedures like treatments for cavities, crowns, teeth grinding, and more 
- [Eyeglasses](https://contacts.fsastore.com/glasses-s/574.htm&utm_source=Lively&utm_medium=TPA+Public+Proprietary+EL&utm_campaign=TPA+Partner)
- [Contact lenses](https://fsastore.com/SearchProducts.aspx?q=Contact%20lenses&utm_source=Lively&utm_medium=TPA+Public+Proprietary+EL&utm_campaign=TPA+Partner)

You can use your FSA contributions to pay for expenses for yourself, your spouse, and your dependents. Like the list provided for Healthcare FSAs, this list is not exhaustive. For a complete list of [Limited Purpose FSA](https://livelyme.com/what-is-a-limited-purpose-fsa), IRS-approved expenses read [“Common Flexible Spending Account (FSA) Eligible Items.”](https://livelyme.com/flexible-spending-account-fsa-eligible-items) 

### Dependent Care FSA

![dependent-care-fsa](//images.ctfassets.net/6j8y907dne6i/2nGiF3Ajakp51BMixuj3yT/819b73042d07640ccf0b1439d7466f51/dependent-care-fsa.jpg)

For you to be eligible to contribute to a [Dependent Care FSA](https://livelyme.com/what-is-a-dependent-care-fsa), you must be the primary caretaker of minor children under the age of 13. And/or an adult-dependent who can't take care of themselves. In both cases, the eligible dependents must live in your home most of the time.

These expenses must be incurred while you work or look for work. That means you can't use contributions for date-night babysitters. Or care providers that allow you to volunteer. An added benefit is that you can maintain a Dependent Care FSA while contributing to an HSA.

Like the previously provided lists, this one is not completely representative of all of the expenses for which you can use your [Dependent Care FSA](https://livelyme.com/what-is-a-dependent-care-fsa) contributions. For a more comprehensive list, read “[Common Flexible Spending Account (FSA) Eligible Items](https://livelyme.com/flexible-spending-account-fsa-eligible-items).” 

- Daycare for minor children under the age of 13
- After-school programs for minor children under the age of 13
- Summer programs for minor children under the age of 13
- Nanny for minor children under the age of 13
- Preschool fees
- Adult daycare programs for adult dependents who can’t take care of themselves
- In-home care services for adult dependents who can't take care of themselves 
- Transportation costs for caretakers

## Is Opening an FSA Worth It?

![is-opening-fsa-worth-it](//images.ctfassets.net/6j8y907dne6i/5NRyIwVMWFbUiIWCyo6hHT/e36161f0226bec6737ec973576f6f257/is-opening-fsa-worth-it.jpg)

Did you read through the list of FSA-approved expenses and see something familiar? If you found items or services you know you'll need in the upcoming year, an FSA could be worth opening. 

Remember, these expenses could be incurred by you, your spouse, or your dependents. By opening an FSA, not only will you save money by lowering your taxable income. But you will ensure that the money is socked away for when you need it during the plan year.

Be cautious because you could lose money left in your account on the last day of your plan. To avoid this, make sure you choose your funding election carefully. 

There are only two cases where left-over funds could still be used after the last plan day. And only if your employer allows it. 

First, employers can allow you to roll over up to $550 of your contribution in 2020 to 2021. Or, they could permit a 2.5 month grace period for you to use the remaining contribution. Either way, be sure to select your FSA contribution carefully so you don't lose any contributions at year-end.

Also, be sure your monthly household budget can afford the FSA contribution you elect. This is important because you won’t be able to change these elections until the following open enrollment period. Or unless you experience a [qualifying life event](https://www.healthcare.gov/glossary/qualifying-life-event/) like marriage, the birth of a child, or the death of a dependent.

As you can see there are many benefits to opening an FSA, regardless of account type. Only you can decide whether it’s worth it to you to open an FSA. If you have any questions about your employer’s specific plan(s), don’t hesitate to reach out to your HR Department.

*__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. 

__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.

*__Editor’s note:__ This post was originally published on July 6, 2017 and updated on August 27, 2020.*

You’re wondering, *“What is an FSA?”* An FSA, or Flexible Spending Account, is a savings account. They are great for reducing the taxable income of an FSA account holder. And are used to deposit and save pre-tax money in an FSA to pay for qualified expenses. 

Depending on the kind of [FSA](https://livelyme.com/fsa) you open, annual contribution limits and qualified expenses vary. Using pre-tax FSA contributions for out-of-pocket expenses could save you thousands a year. It all depends on your tax bracket.

## How to Qualify for an FSA

To qualify for an FSA, your employer must offer one. This means you can’t open an FSA in the private market. Here's what you *can* do. 

Take advantage of your employer’s FSA offering. Even without participating in an employer-sponsored group health plan. In fact, there are no health plan requirements for opening a [Healthcare FSA](https://livelyme.com/what-is-a-healthcare-fsa) or [Limited Purpose FSA](https://livelyme.com/what-is-a-limited-purpose-fsa). With an FSA, you continue to have the ultimate freedom to choose the health insurance strategy that works for you and your family.

To qualify for a [Dependent Care FSA](https://livelyme.com/what-is-a-dependent-care-fsa) you must have at least one of the following who lives with you most of the time:

- A minor dependent (under the age of 13) 
- A child over the age of 13 who can’t take care of themselves
- An adult-dependent who can’t take care of themselves

There's a stipulation in the case that you and the child’s/children’s other parent are either divorced or do not live in the same household. Only the parent with primary custody is eligible to contribute to and use a Dependent Care FSA.

## The Three Most Popular Types of FSAs

![three-types-fsa](//images.ctfassets.net/6j8y907dne6i/4vjww0eyohfNTJynnmaWHt/5805733bca58fe535a4cd9ad346d6310/three-types-fsa.jpg)

The three most popular types of FSAs are [Healthcare FSA](https://livelyme.com/what-is-a-healthcare-fsa), [Limited Purpose FSA](https://livelyme.com/what-is-a-limited-purpose-fsa), and  [Dependent Care FSA](https://livelyme.com/what-is-a-dependent-care-fsa).

You can take part in all three at once (if your employer offers all three). Or any combination of them, depending on what’s available to you and what makes sense for your situation.

1. __Healthcare FSA__: Contributions made to these types of accounts are used for qualified medical expenses. You __can’t__ contribute money to both a Health Savings Account ([HSA](https://livelyme.com/what-is-hsa)), paired with a [High Deductible Health Plan](https://livelyme.com/what-is-a-high-deductible-health-plan-hdhp/), and a healthcare FSA at the same time. But you can use previous HSA contributions while you’re actively contributing to a Healthcare FSA.
2. __Limited Purpose FSA__: Contributions to these types of accounts are for qualified dental and vision expenses. Because you can use your money for a limited number of expenses, the IRS allows you to contribute to this type of FSA and an [HSA](https://livelyme.com/hsa-guide#what-is-an-hsa?) at the same time.
3. __Dependent Care FSA__: Contributions to this type of FSA must be used for dependent care costs that allow you, a full-time caretaker of either a minor or adult dependent, to work or look for work. That means date night babysitters are out of the question. But childcare or adult daycare, while you’re at work, are acceptable. You can also pair a Dependent Care FSA with an HSA if that makes sense for your situation.

## What You Can Buy with Your FSA Money

![what-to-buy-fsa-money](//images.ctfassets.net/6j8y907dne6i/7722tzs1lEln7iwIA8F6o5/bc25a740e397086d26203e43823d2b11/what-to-buy-fsa-money.jpg)

### Healthcare FSA

*Qualified health care expenses include, but are not limited to:*

- Copays
- Coinsurance
- Deductibles
- Medical supplies like [band-aids](https://contacts.fsastore.com/?utm_source=Lively&utm_medium=TPA+Public+Proprietary+EL&utm_campaign=TPA+Partner), [joint braces](https://fsastore.com/SearchProducts.aspx?q=braces&utm_source=Lively&utm_medium=TPA+Public+Proprietary+EL&utm_campaign=TPA+Partner), and [crutches](https://fsastore.com/SearchProducts.aspx?q=crutches&utm_source=Lively&utm_medium=TPA+Public+Proprietary+EL&utm_campaign=TPA+Partner)
- Hearing aids
- Sunscreen
- Prescriptions
- Over-the-counter drugs with a prescription ([insulin](https://fsastore.com/SearchProducts.aspx?q=insulin&utm_source=Lively&utm_medium=TPA+Public+Proprietary+EL&utm_campaign=TPA+Partner) refills don’t need a prescription)
- Out-of-pocket expenses you incur for diagnostic tests, and in-patient and out-patient procedures. Provided they are considered “qualified” by the IRS.
- Anything you can find on the [FSA Store](https://fsastore.com/?utm_source=Lively&utm_medium=TPA+Public+Proprietary+EL&utm_campaign=TPA+Partner)

*Note:* You can use your FSA contributions to pay for expenses incurred by yourself, your spouse, and your dependents. 

*__Discover the rules of a [Healthcare FSA](https://livelyme.com/what-is-a-healthcare-fsa) and if it makes sense for you.__*

### Limited Purpose FSA

*Qualified dental and vision expenses include but are not limited to:*

- Copays
- Coinsurance
- Deductibles
- Eye exams
- [Contact lenses](https://contacts.fsastore.com/?utm_source=Lively&utm_medium=TPA+Public+Proprietary+EL&utm_campaign=TPA+Partner)
- [Eyeglasses](https://contacts.fsastore.com/glasses-s/574.htm&utm_source=Lively&utm_medium=TPA+Public+Proprietary+EL&utm_campaign=TPA+Partner)
- Teeth cleanings
- Out-of-pocket expenses for dental and vision procedures. Provided they are considered “qualified” by the IRS.

*Note:* You can use your FSA contributions to pay for expenses incurred by yourself, your spouse, and your dependents.

*__Discover the rules of a [Limited-Purpose FSA](https://livelyme.com/what-is-a-limited-purpose-fsa) and if it makes sense for you.__*

### Dependent Care FSA

*The IRS considers the following eligible dependent care expenses:*

- Wages or fees for a babysitter, nanny, au pair, daycare or summer camp 
- Activity fees
- After-school programs
- Preschool tuition
- Adult daycare
- Payroll taxes for caregivers
- Transportation costs for caregivers

*__Discover the rules of a [Dependent Care FSA](https://livelyme.com/what-is-a-dependent-care-fsa) and if it makes sense for you.__*

## Contributing to Your FSA

![contributing-fsa](//images.ctfassets.net/6j8y907dne6i/018KjAXZM2mtoQqQP8caOB/e7ba8d143caaab8444b61d2fccf503a9/contributing-fsa.jpg)

If you decide you want to contribute to an FSA, you must elect to do so during your employer’s [open enrollment](https://livelyme.com/open-enrollment-tips-for-employees) or a special enrollment period. You must also choose your annual contribution amount at that time. Make sure to adhere to the annual limits the IRS sets for each account. For the year 2021, the limits are as follows:

__Healthcare FSA__: $2,750. Healthcare FSAs are only opened on an individual basis. So the annual limits are the same whether you’re one person or a family of five covered under a family plan. If your spouse also has the option to open a Healthcare FSA through their place of employment, they are free to do that. And contribute up to the maximum allowable amount.

__Limited Purpose FSA__: $2,750. Like a Healthcare FSA, a Limited Purpose FSA is opened on an individual basis. If you and your spouse both have the option of opening separate accounts through your employers, you are free to do that. And contribute up to the maximum allowable amount in each account.

__Dependent Care FSA__: $5,000 for individuals or married couples filing jointly, and $2,500 for married couples filing separately.

*Note*: The IRS sets the annual contribution limits for FSAs and they are subject to change on an annual basis. Before you make your annual contribution election, make sure you have the most up-to-date information for your plan year.

## Does My FSA Rollover at Year-End?

![does-fsa-rollover](//images.ctfassets.net/6j8y907dne6i/5S6rfGbsBaP9QooWxhRhIC/98001ad73868c4bcde6eddca1e32975d/does-fsa-rollover.jpg)

No, your FSA contributions do not rollover at the end of your plan year. Your employer has the option to offer (but is not required) one of the two following solutions for people with FSA funds left in their account at the end of the year:

- __A Grace Period__: 2.5 months extra for the employee to use his or her FSA contributions from the prior year. After the grace period, any unused funds are turned over to the employer.
- __A Carry-Over__: For 2021 the IRS increased the carryover limit for Healthcare and Limited Purpose FSAs from $500 to $550. The IRS decided the carryover limit will be assessed annually and tied to inflation, the number adjusting to the next lowest multiple of $10. An allowable carry over up to $500 will remain for Dependent Care FSAs.

## Is an FSA Right for Me?

FSAs are a great way to save money, pre-tax, for expected medical, dental, vision, and dependent care expenses for the coming year. They offer flexibility in terms of health insurance plans and dependent care. And can result in thousands of dollars of savings, depending on your tax bracket.

To take full advantage of FSA benefits, make sure you take the time to assess your needs and make your annual election. As always, if you have any questions about FSA accounts offered by your employer, reach out to your HR department.


What is an FSA? 3 Types For Your Unique Needs

*__Editor’s note:__ An earlier, and shorter version of this [blog post](https://livelyme.com/hsa-eligibility-details) was previously published. We published this update because knowing whether you’re eligible for an HSA is the vital first step to taking advantage of their short and long-term savings benefits.*

---

The value and [benefits of an HSA](https://livelyme.com/what-are-the-benefits-of-an-health-savings-account/) are hard to pass up. You can choose to save for the [short-term](https://livelyme.com/short-term-hsa-value/), [long-term](https://livelyme.com/long-term-value-hsa/), or even retirement. And you have ultimate flexibility in when you open an account and how much you contribute.

What isn't flexible are the eligibility requirements. Here’s how to determine if you’re eligible for an HSA.

## Who Can Open an HSA?

To qualify for an HSA, you must meet the following criteria:

1. You’re covered by a qualifying [High-Deductible Health Plan](https://livelyme.com/what-is-a-high-deductible-health-plan-hdhp/) (HDHP).
2. The HDHP is your only health insurance coverage. Meaning, you don’t have supplemental coverage from a spouse or other family member (dental and vision is fine).
3. You don’t have or use a [General Purpose FSA](https://livelyme.com/what-is-a-healthcare-fsa) (Flexible Spending Account). But, you are allowed to have a [Limited Purpose FSA](https://livelyme.com/what-is-a-limited-purpose-fsa) for dental, vision, or a [Dependent Care FSA](https://livelyme.com/what-is-a-dependent-care-fsa). __Note:__ You can have an existing HSA and open an FSA. Your HSA funds will remain, but you cannot continue contributing to the health savings account. 
4. No one else can claim you as a dependent on their tax return.
5. You’re between the ages of 18 and 65 and not enrolled in or eligible for Medicare (Part A and Part B) or Medicaid.  

## What is an HSA-eligible High Deductible Health Plan (HDHP)?

![hsa-eligible-high-deductible-health-plan](//images.ctfassets.net/6j8y907dne6i/2tyQe4MedKzY7WVkepnWay/cf34b225fe608090fd3f09da683758f1/hsa-eligible-high-deductible-health-plan.jpg)

The IRS determines health plan eligibility on an annual basis. They adjust minimum deductibles and maximum out-of-pocket costs year-to-year for inflation. The following are the HDHP qualifying parameters for 2020 and 2021.

- The HDHP must have an annual minimum deductible of $1,400 for individuals. And $2,800 for families.
- In 2020, the annual in-network out-of-pocket maximum can’t be more than $6,900 for individuals. And $13,800 for families.
- In 2021, the annual in-network out-of-pocket maximum can’t be more than $7,000 for individuals. And $14,000 for families.

Additional requirements of HSA-eligible HDHPs:

- Before any insurance payments kick in, an individual or family must pay for healthcare costs up to the deductible. This includes prescriptions. Preventative care is excluded from this definition.
- Family coverage means having an insurance policy that covers the insured and at least one other person.

Your health plan must meet all of these requirements to qualify as an HSA-eligible High Deductible Health Plan. 
<iframe src="https://player.vimeo.com/video/274128707" width="640" height="564" frameborder="0" allow="autoplay; fullscreen" allowfullscreen></iframe>

## How Much Am I Allowed to Contribute to My HSA?

Because the contributions you make to your account are tax-free, the IRS has strict rules about funding your HSA. Like the requirements around qualifying health plans, the IRS changes the amount you’re allowed to contribute to your HSA. This usually occurs annually. Here are the [contribution limits](https://livelyme.com/hsa-guide) for 2020 and 2021.

- If you have an individual plan: you can contribute $3,550 in 2020 and $3,600 in 2021.
- If you have a family plan: you can contribute $7,100 in 2020 and $7,200 in 2021.
- If you or another member of your family is 55 or older: you can contribute an additional $1,000 per year.

Every contribution you make reflects a deduction in the amount of taxes you’ll pay on your gross income. You won’t pay taxes on your employer’s contributions either. But they will count towards your annual HSA contribution limit.

## What are HSA Eligible Expenses?

![hsa-eligible-expenses](//images.ctfassets.net/6j8y907dne6i/373FpuPgY4IbfWN9bx4qZ3/4f0238424b72f83e038692e310b4212c/hsa-eligible-expenses__1_.jpg)

If you’re going to open an HSA, it’s fair to ask: how can I spend my money? The IRS refers to the expenses that you can use your HSA contributions towards as “[qualified medical expenses](https://livelyme.com/whats-eligible/).”

These are always out-of-pocket medical expenses. Meaning, you can’t get a disbursement from your account for something your health insurance already paid for. Out-of-pocket medical expenses also exclude insurance premiums. Here are some of the expenses the IRS deems “qualified:”

- Deductibles
- Copays
- Coinsurance
- Diagnostic tests like x-rays, MRIs, blood tests, etc.
- Medical supplies like [bandages](https://hsastore.com/SearchProducts.aspx?q=bandage&utm_source=Lively&utm_medium=TPA+Public+Proprietary+EL&utm_campaign=TPA+Partner), [braces](https://hsastore.com/SearchProducts.aspx?q=brace&utm_source=Lively&utm_medium=TPA+Public+Proprietary+EL&utm_campaign=TPA+Partner), and [crutches](https://hsastore.com/SearchProducts.aspx?q=crutches&utm_source=Lively&utm_medium=TPA+Public+Proprietary+EL&utm_campaign=TPA+Partner)
- Alternative medicine like acupuncture and acupressure
- Prescription drugs
- Over-the-counter drugs with a prescription
- Quality of life enhancements like air purifiers (as long as you have a letter of medical need)

The IRS frequently updates its list of qualified medical expenses. So, if you’re not sure what you’re paying for is covered, check out our comprehensive list of [HSA eligible expenses](https://livelyme.com/whats-eligible). 

## What Happens When I Lose My HSA Eligibility?

![lose-hsa-eligibility](//images.ctfassets.net/6j8y907dne6i/1BbLLPh9g1rpGc9knGV5sU/45a780c7cb44ff0069cc29d8a9930e87/lose-hsa-eligibility.jpg)

Circumstances like employment and [health insurance needs](https://www.healthcare.gov/glossary/qualifying-life-event/) can change in an instant. Here's what happens to your HSA if you no longer meet the eligibility requirements. 

1. __You own your account.__ That means that if you change employers, become unemployed, or retire, you keep all contributions to that account. Even the contributions your employer made. So no matter your eligibility status, the money that has been contributed remains. And is available to you for distribution.

2. __Lost eligibility?__ As long as you’re under the age of 65, you can regain HSA eligibility. Once you regain eligibility you can continue making contributions to the same account. If it's available to you. Or you can open another account. 

If you’ve moved to a new employer that uses a different HSA administrator, you may have to [roll the account](https://livelyme.com/trustee-to-trustee-transfer-vs-direct-rollover) from your previous employer into a new HSA. Or you can choose to keep two separate HSAs.

HSAs offer a wide range of benefits, including tax advantages and a way to save for retirement, so it’s important to maintain your eligibility in order to maximize your savings.


__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).







Lauren Hargrave

Staff Writer

Lively Blog

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