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Limited Purpose FSA

All you need to know about your Limited Purpose FSA — how much to contribute, what to spend on, and what makes it unique.

What is a Limited Purpose FSA & How It Could Help You Save

Open Enrollment

Learn how to use your HSA or FSA funds to pay for eligible travel and transportation expenses. 

How to Use Your HSA or FSA for Travel Expenses

Health Savings Account (HSA) vs. Flexible Spending Account (FSA) - here are the pros and cons of both. Let us help you with all things health related.

Comparing the HSA to the FSA

Learn all of the HSA benefits you should be taking advantage of, from healthcare savings to retirement planning.

What are the Benefits of a Health Savings Account (HSA)?

HSA Account Rules

Employee Benefits

Reasons you may want to invest your HSA, reasons it may not be for you, and things to keep in mind when investing. 

How to Invest an HSA: Make the Most of Your Money

We dive into HSA contribution limits, plus what you need to know if you gain or lose HSA eligibility during the year. 

HSA Mid-year Changes: What Happens to Contribution Limits?

Personal Finance

Learn exactly how to calculate your HSA annual contribution limit if you changed coverage type or eligibility mid-year. 

Calculate Max HSA Contributions: A Step-by-Step Guide

have or was offered job-based insurance?

 Once qualified, you can open an HSA account anytime you want. Learn how today.

How to Open a Health Savings Account (HSA) Outside of Open Enrollment

FSA (Flexible Spending Account)

HSA Max Contributions

HSA Investment

Everyone wants to make the most of their HSA funds. That’s why knowing how to establish an HSA is so important. 

How to Establish an HSA

Financial Health

Flexible Spending Account Rules

Benefits

Learn how to deal with excess contributions to your HSA to avoid taxes and penalties. 

How to Handle Excess Contributions to Your HSA

So how does an HSA work? Learn how to enroll, contribute, and spend your HSA funds now.

How Does an HSA Work? How to Enroll, Contribute and Spend

HSA (Health Savings Account)

Leslie is a Freelance Content Specialist who focuses primarily on the backend of start-up life. With experience in things ranging from healthcare to payroll, Leslie has brought her experience to many start-ups, including Brex, Gusto, Homebase, and Wonolo. When she's not writing, you can find her reading our out on a hike. 

Leslie Harding

__Editor's Note__: This article has been edited to include more relevant information. This article was originally published on January 31, 2019. 

---

A health savings account (HSA) can be a great way to save money for medical expenses and even for retirement. But they do have  rules you have to follow in regards to how much you can contribute. 

If you go over your contribution limits, that money is an excess contribution. There are a few ways to deal with excess contributions. No matter which option you choose, it’s always best to try to fix the mistake as soon as you realize it.

## Benefits of a Health Savings Account

The IRS sets annual contribution limits because HSAs offer three main tax benefits:

1. Your HSA contributions are tax deductible.
2. If you invest your HSA money, the earnings grow tax-free.
3. You can withdraw your HSA money tax-free when spending it on qualified medical expenses.

If you receive your HSA as a benefit from your employer, you can take it with you if you leave your job. So you own the account and can take it with you throughout your career. Even better, there is no deadline to use the funds you contribute in your HSA. You can save them for a big [planned medical expense](https://livelyme.com/should-i-use-my-hsa-to-save-money-or-spend-it), or keep them [growing until retirement](https://livelyme.com/hsas-and-retirement-what-you-need-to-know) if you want.

You may have noticed tax-advantaged accounts, like your 401(k), Roth IRA, or 529 plan, have contribution limits. Otherwise, folks could get away with major tax savings — more than the IRS would like. Your HSA is no different. Even when you get tax breaks, the IRS still puts limits in 
place and works to ensure everybody plays by the rules. 

## Contribution Limits

HSA contribution limits go by the calendar year. So even if you enrolled in your HSA mid-year, or your plan year runs on a different schedule, you are still subject to calendar year contribution limits. Limits change every year, so make sure you stay up to date and don’t reference limits from the previous year. The limits for 2021 are below.

![2021-contribution-limits](//images.ctfassets.net/6j8y907dne6i/1a0iTXII4MfjYn6GqsRVkr/f0aa0aa5bcb6da4bb7e5efc94d9316e3/chart_5.svg)

If you are enrolled in your HSA the full calendar year and your health plan doesn’t change, it is pretty straightforward to understand your contribution limit. But there can be a few factors that make it trickier: 

1. __Multiple sources contributing to your HSA__. Anybody can contribute to an HSA, so if you have your employer, yourself, and a generous family member all contributing, you have to make sure to coordinate your efforts so you don’t go over the limit.
2. __[Gaining or losing coverage mid-year](https://livelyme.com/hsa-contribution-limits-mid-year-changes)__. If you gain or lose coverage under a [high deductible health plan](https://livelyme.com/what-is-a-high-deductible-health-plan-hdhp) (HDHP) during the year, you will change your HSA eligibility status. If you are not eligible for an HSA during the entire calendar year you have to either adjust your contributions accordingly or make sure you qualify under the last month rule. Either way, it’s important to be aware of your HSA eligibility and contribute accordingly.
3. __[Changing plan type mid-year](https://livelyme.com/calculate-max-hsa-contributions-mid-year-change)__. The contribution limits are different for individual and family plans. If you got married during the year, or your spouse got other coverage and left your plan, you experienced a change in plan type. You have to make sure that you don’t go over the individual limit in the months you are an individual and vice versa for family plans. 

No matter what situation you are in, it is a smart move to know your contribution limit every year, just like you would your income for the year, and stay on top of the contributions to your HSA.

## Penalties for Excess Contributions

There are three consequences for making excess HSA contributions: 

1. 6% excise tax on the excess contribution
2. Income taxes on the excess contribution
3. Income taxes on any earnings the excess contribution made

It is important to be aware that excess contributions and earnings from those contributions are subject to income tax, particularly if your HSA is invested. 

## Fixing Excess Contributions

If you realize you have made excess contributions to your HSA it can feel like a big mistake. But the good news is that there are ways to fix it and move forward.

### Option 1: Removing the Excess Contributions

This is by far the most straightforward option, and it is one that many people choose when they make excess contributions. 

If you realize you have made an excess contribution before the tax year ends (usually April 15), take it out immediately. You can take out the excess contribution by making a request with your HSA provider, which may involve filling out a form or two. If you have been contributing to your HSA via payroll, you should also inform your employer. Once you take the money out it will be regular taxable income earned. 

If you remove the excess contribution before the deadline for filing your personal income tax return, you won’t be subject to excise tax. If you remove it before the end of the calendar year, you typically won’t need corrected tax forms. If you remove it after the end of the calendar year, but before the end of the tax year, you won’t be subject to excise tax, but you may need corrected tax forms. If you remove it after the tax year has ended, you will be subject to excise tax for that year (and all other years you keep the excess contribution in your account). 

Here’s a table to help remember the dates involved. In this example, we are assuming you made the excess contribution in the 2020 calendar year. 

![chart 7](//images.ctfassets.net/6j8y907dne6i/1KXd91QOGMwWzTMeqipHH3/00fcbb7b2718a643b4f3ba3d494d4d15/chart_7.svg)

### Option 2: Rollover the Excess Contributions to Next Year

This is an option that you should choose if you are certain you will be keeping a close eye on your HSA contributions in the future. 

With this option you rollover the excess contribution in your HSA to a future year and pay excise tax for the intervening years. You will deduct the rollover on IRS Form 8889 when you are ready. 

For example, say that I made an excess contribution of $100 in 2020. I decide to roll it over to 2021, so I pay $6 in excise tax in 2020, then report the $100 on [Form 8889](https://livelyme.com/what-is-tax-form-8889) in 2021. I will also make sure that I do not go over my contribution limit in 2021 with the rollover included.

### Option 3: Do Nothing

We get it. You’re busy, and taxes can be a big headache. It may be tempting to ignore excess contributions and hope that nothing will go wrong, but this is a bad option. 

If you do nothing, your excess contributions (and associated earnings) will be subject to income tax and excise tax in the year you made them. This alone may seem bad enough, but they will also be subject to excise tax every year until they are removed. That’s definitely a good reason to take action the moment you figure out you have excess contributions. 

## Monitor Your Contributions to Avoid Future Issues

HSAs offer a plethora of tax benefits, and they can be a great way to save money for medical expenses and for retirement. But they do come with some responsibilities, among which is making sure you follow contribution limits. Before you set up your HSA contributions for the year, take a look at the new IRS limits and make sure that all of your contributions will stay below that number. If your eligibility status or plan type is going to change throughout the year, make sure you are aware of how that impacts your limit. Doing some preparation and planning goes a long way when it comes to avoiding penalties when you contribute to your HSA.


__Editor’s note__: We recently updated the contents of this blog post to reflect more current information. This blog post was originally posted on September 27, 2017.

---

[Health Savings Accounts](https://livelyme.com/what-are-the-benefits-of-an-health-savings-account) (HSAs) are a great way to save money for healthcare expenses in retirement. There are three major tax savings to an HSA:

- Tax-deductible contributions
- Tax-free interest 
- Tax-free distributions on qualified medical expenses

There’s one more way to grow your money — by investing your HSA. In this post we’ll dive into reasons you may want to invest and things to keep in mind when investing your HSA. As with all money matters, it’s always a good idea to consult a professional for legal and tax advice. They are the most qualified to help you with your personal situation. 

## Define the Goals of Your HSA

It’s important to define your goals for your HSA. This will help you figure out if investing is right for you. Remember, HSAs do have [annual contribution limits](https://livelyme.com/calculate-max-hsa-contributions-mid-year-change), determined by the IRS. In 2021 the individual contribution limit is $3,600 and the family contribution limit is $7,200. The IRS increases contribution limits to account for inflation. Be sure to take this into account when you're thinking about future savings.

### Goal: Saving for Ongoing Expenses

An important goal for many HSA users is to pay for ongoing medical expenses. These are the expenses that come up on a regular basis, like prescriptions and copays. Most of the time, these are smaller purchases that your health insurance doesn't cover. Since you need a high-deductible health plan to contribute to an HSA, it’s important to make sure you’re covered.

You should be able to estimate your typical expenses by looking at past expenses. You can estimate how much much you anticipate to spend annually based on previous years. The next step is to make sure to contribute enough to your HSA to cover those expenses. If your goal is to save for ongoing expenses, it's a good idea to keep this money in your HSA in cash. This makes it much easier for you to access it in the short term.

### Goal: Saving for Planned Expenses

Another goal many people have for their HSA is to save for a large planned expense. Here are some examples:

- Orthodontia
- Elective Surgery
- Lasik Eye Surgery
- Any other qualified expense your health plan doesn't cover

Once you find out you may have a large planned expense coming up, start saving now. Make sure to plan out your HSA contributions so you will have enough funds to pay for the expense when it arises. Again, it’s a good idea to keep this money in your HSA in cash, as you know you will be spending it soon. 

### Goal: Saving for an Emergency

Another goal for many Americans is to save for an unexpected medical emergency. While nobody likes to think this may happen to them, it’s a good idea to be prepared. You should keep some cash in your HSA for unexpected expenses that come up.

### Goal: Saving for Retirement

Another important goal for many people is to save money for retirement. The great thing about an HSA is that it has triple tax benefits.  One of those ways is a good strategy to save for retirement. 

Once you are over age 65 and enrolled in Medicare, you can no longer contribute to an HSA. But you can still withdraw funds tax-free for qualified medical expenses. As many people experience increasing health care costs as they age, this can end up being a helpful way to pay the bills. 

Another important aging-related use of HSAs is for long term care insurance premiums. The amount you can spend on premiums depends on your age, and it increases as you get older.

There is another big benefit to using an HSA to save for retirement. Once you are over age 65 you can withdraw HSA funds for ANY expenses, not just qualified expenses, without experiencing a penalty. If you were to do this under age 65 you would have to pay taxes and penalties. If you do decide to use your HSA for non-healthcare expenses in retirement, remember that those withdrawals are subject to regular income taxes, similar to an IRA or 401k, or other retirement accounts. 

Saving for retirement is a big reason that people choose to invest their HSA funds. Investing is a good way to potentially grow your money over a longer period of time. That’s why it is an appealing option for those looking to save money up for their future retirement. For those who may have ongoing expenses and wish to save for the future, a mix of cash and investments in their HSA could be the right option.

## Evaluate Your Options an Invest Appropriately

Once you decide that you would like to invest your HSA, it’s a good idea to do some research. Here are a few things to consider to help you make a good decision.

### Minimum Balance

Many HSA providers require minimum account balances to invest HSA funds (thought that isn’t the case [here at Lively](https://livelyme.com/features/invest-your-lively-hsa)). If your HSA provider does have an account minimum, it is important to be aware of this fact and the dollar minimum. 

If you are sure you will always have an account balance above the minimum, then you can proceed with investing without issues. If you currently don't have enough to meet the minimum, or you're concerned about dipping below that - find a provider with a lower investment threshold (or [none at all](https://livelyme.com/features/invest-your-lively-hsa)). 

### Investment Accounts

Many HSAs have pre-selected mutual funds or investing limitations, so do your due diligence before you get started. At Lively, it’s simple to invest your HSA funds by leveraging [industry leading investment options](https://livelyme.com/features/invest-your-lively-hsa). Simply put, you can invest in what you want with us. If it is important to you to choose exactly what you invest in, make sure this is an option with your provider.

### Investment Fees

All types of investments are typically subject to some fees, whether those are commissions, trading fees, or other varieties of fees. Before you start investing, make sure to find out what fees you will be subject to with your HSA provider. If you’d like more tailored investment advice, see if that is available from your provider and if it is subject to additional fees.

## Use Your HSA to Plan for the Future

Investing provides a clear path to further leverage the power of your HSA and grow your HSA funds for years to come. Before you invest, make sure to outline your financial and healthcare goals. Then align your HSA Investment strategy with your lifestyle to achieve those goals. With the right balance of investments and cash savings you should be able to pay for qualified out-of-pocket medical costs today, tax-free, and save for healthcare costs well into retirement.


__Editor’s note__: We recently updated the contents of this blog post to reflect more current information. This blog post was originally posted on December 20, 2017.

---

If you’re looking to save money on healthcare expenses, a Health Savings Account (HSA) can be a valuable tool. If you’re qualified, you can open an HSA account anytime.

Once you have an HSA, you will have a triple-tax advantaged account. That means you will be able to:

- Contribute pre-tax or tax deductible contributions
- Grow your investments tax free
- Use funds for qualified medical expenses tax free

It’s one of the reasons HSAs are so great for people looking to save money on healthcare costs and income tax.

## Make Sure You Qualify for an HSA

Before you shop for and open an HSA, it’s a good idea to make sure you qualify. To be [HSA qualified](https://livelyme.com/hsa-eligibility-requirements), you must enroll in an HSA-eligible high deductible health plan (HDHP). 

Under 2020 and 2021 federal regulations, HDHPs that qualify must have deductibles of $1,400 or more for an individual and $2,800 for a family. Additionally, the annual out-of-pocket maximum on plans in 2021 is $7,000 for self-only coverage and $14,000 for family coverage.

There are a few other requirements you must meet to be HSA qualified. You can’t have any other health insurance coverage besides your HDHP. You can’t have or use a [General Purpose FSA](https://livelyme.com/what-is-a-healthcare-fsa). You can’t be a dependent on someone else’s tax return. And finally, you must be between age 18 and age 65, and you can’t enroll in Medicaid or Medicare. 

## Research and Choose the Best Option for You

You have many options when choosing an [HSA provider](https://livelyme.com/features). Most banks, credit unions, and other financial institutions offer HSAs. You can do some research online to figure out their features and decide which one is right for your needs.

Here are some questions to ask yourself when choosing an HSA provider:

### Are there fees? How much are they? 

There are myriad fees that some HSA providers may charge. Some of these include account opening fees, maintenance fees, fund transfer fees, and debit card fees. It’s important to understand any and all fees you may come across, so you aren’t caught with any surprises down the road.

Consider looking for providers who don't have any fees for at all. Ask the provider for a "fee schedule". This is a list of fees that the provider will charge.

### Does the account come with investment options?

Many HSA providers give you the option to invest the money in your HSA. This can be a good option if you are looking to save for retirement and grow your account over time. 

As with all investment accounts, make sure you research brokerage fees, transaction fees, and expense ratios for these offerings. FDIC insurance only applies to HSAs if they are not invested. Make sure you understand the risks and possible rewards of investing. If you’re not sure what the right option is for you, it’s always a smart idea to consult a tax advisor.

### Is it easy to spend HSA funds? What about getting reimbursed by my HSA?

Some HSA providers will issue debit cards for you to pay for qualified medical expenses. This can be a convenient way to use HSA funds, especially if you incur a lot of expenses. 

There's also the option of reimbursing yourself with your HSA. In the event that you ever forget your card at home, you can always log an out-of-pocket expense to reimburse yourself later.

### Can you manage your account online or with an app? 

Some HSA providers offer apps or robust online portals for you to manage your account. This can be a convenient way to manage your contributions and spending. The best apps will also help you track your investments and growth as well. Most of the time, all you’ll need to sign up is an email address and your healthcare information.

This is especially important if you are saving for a particular goal or if you want to check in to make sure you don’t go over [annual contribution limits](https://livelyme.com/how-does-a-health-savings-account-work).

## Open Your New HSA

As soon as you know you are or will be eligible for an HSA, you can start the process of opening an account. Some employers will offer one to you, or you can open one on your own. 

Unlike Flexible Spending Accounts (FSAs), you do not need to wait until open enrollment to sign up for an HSA. You can open up an HSA at any time.

With most providers you can open your account online, from the comfort of your own home. But if you prefer, you can also do it over the phone or in person at some institutions.  Make sure to have your personal info and insurance plan details at the ready. 

It's important to note that you actually won’t be able to contribute until the first day of the first full month you are HSA eligible. For example, if you enroll in a HDHP on January 15, you can start contributing to your HSA on February 1. 

You can open an HSA anytime, as long as you’re qualified. After you open your new account, this is also a good time to roll over any funds you may have in another HSA, if applicable.

## Take Advantage of HSA Benefits Today

A major benefit to opening an HSA is to invest your funds for the future. Investing your HSA dollars is a great way to save money for future healthcare costs or retirement. Plus, you can use HSA funds on qualified expenses anytime after you establish your HSA. 

Even if you don’t have enough money at the time, you can wait and reimburse yourself for qualified expenses in the future when you do have the funds. This great feature makes it even more important to open your HSA and start saving today.


__Editor’s note__: We recently updated the contents of this blog post to reflect more current information. This blog post was originally posted on March 20, 2017.

---

As medical costs continue to rise, many people are looking to save money wherever possible. Health Savings Accounts (HSAs) and Flexible Spending Accounts (FSAs) are both tax-advantaged accounts. They can help you save money on qualified medical expenses in the long run. But there are some key differences between HSAs and FSAs that you need to know before you open an account. 

## HSA vs. FSA Basics

There are some basic facts you need to know to understand the differences between FSAs and HSAs. The big similarity they share is that they are both tax-advantaged accounts. This means you can contribute pre-tax funds and withdraw money tax-free when using it to pay for qualified expenses. 

The [major difference](https://livelyme.com/differences-between-hsa-vs-healthcare-fsa-infographic) they have is that an FSA is an employer owned account that pays for short-term expenses. You must use up the FSA funds you contributed by the end of the year.

HSAs are individually owned, and you can use them for short-term expenses, or long-term savings, like retirement.

### Types of Accounts

There is only one type of HSA, and its main use is to pay for qualified medical costs at any age. 

There are three types of FSAs: 

- [Healthcare FSA](https://livelyme.com/what-is-a-healthcare-fsa)
- [Dependent Care FSA](https://livelyme.com/what-is-a-dependent-care-fsa)
- [Limited Purpose FSA](https://livelyme.com/what-is-a-limited-purpose-fsa)

When people use the term “FSA,” they are most often talking about a Healthcare FSA. Healthcare FSAs are for qualified medical expenses. Dependent Care FSAs are for qualified care expenses, like child or adult daycare. Limited Purpose FSAs are only used for qualified dental and vision expenses. 

The most important thing to remember is that you cannot contribute to a Healthcare FSA or Dependent Care FSA and an HSA at the same time. But you can have a Limited Purpose FSA and an HSA at the same time. 

## Use-it-or-lose-it and Rollover Rules

Many people have heard the term “use-it-or-lose-it” from their providers. It’s important to know this rule as you consider the differences between HSAs vs. FSAs. 

Only FSAs are subject to use-it-or-lose-it rules, which means that if you don’t use the funds you contribute during the year you lose them. Employers have the choice to allow some of the funds to rollover to the next year (up to $550 from 2020 to 2021). They also have the choice to allow a “grace period” to use funds (until March 15 of the following year). But they are not required to do either of these things. Knowing these deadlines can help save you money from going back to your employer. 

HSAs are not subject to any of these restrictions. Because you own your own HSA account, those funds never expire. You can decide to use them all or save them for later, but you won’t ever lose them because a plan year is ending. 

### Contribution Limits

HSAs and FSAs both have annual contribution limits. The following table outlines those limits for 2021:

![chart 6](//images.ctfassets.net/6j8y907dne6i/xPwlrN7kQQt8PeXwnDQON/55f361cf1df065c46cf6e1f0cf5887ee/chart_6.svg)

You can make HSA contributions throughout the year, whenever you choose. You can choose to contribute via a payroll deduction, or you can choose to contribute within a lump-sum. When contributing via a payroll deduction, you will contribute pre-tax. This helps reduce your taxable income. When you contribute via a lump sum after-tax, those funds are tax-deductible. 

For FSAs, you can only decide on how much you contribute at the beginning of the plan year (unless you experience a qualifying life event). This means you must decide how much you want to contribute monthly from the start. You can't raise or lower the amount later in the year. 

You can use your full FSA contribution amount at any time. This is because your company deducts your FSA funds via payroll throughout the year. So you don’t have to wait until the end of year to max out your spending if you would like. 

![eligibility-requirements-for-each-account](//images.ctfassets.net/6j8y907dne6i/7lNxy3SrTQYOX1OH5LQot4/42806edeea8b9beff9dc80a9b036fb6d/eligibility-requirements-for-each-account.jpg)

## Eligibility Requirements for Each Account

A common question that many people have is how to choose the right account. Luckily there are eligibility rules about who can have which type of account. 

### Which account should I choose?

To qualify for an HSA, you must also enroll in a high deductible health plan (HDHP). If you are eligible, you can open an HSA with the provider of your choice. Often times your employer will have an HSA provider for you. In the event you change jobs, you can then choose to switch HSA providers as you are the account owner.

To qualify for an FSA, your employer must offer one as part of their benefits package. You can’t open one on your own. You must decide to enroll during open enrollment and choose how much you want to contribute for the year. 

Still can't choose? Your company's health plans and benefit packages can help determine if an HSA or FSA is right for you. 

## Advantages and Disadvantages of FSAs and HSAs

While it’s likely you’ll only be eligible for either a Healthcare FSA or an HSA, it is still a good idea to take a look at the pros and cons of both types of accounts. This can help you understand how they align with your greater financial goals and help you decide what healthplan to choose.

### HSA Advantages

- __Portable account__: means you own the account and don’t lose it if you change jobs
- __Triple-tax advantage__: Contribute funds pre-tax, funds grow pre-tax, withdraw funds pre-tax for qualified expenses
- __No use-it-or-lose-it rules__: Spend now or save for retirement.
- __Anybody can contribute to your HSA__: This includes your employer, spouse, family, or friends, as long as you don’t go over the annual contribution limit.

### HSA Disadvantages

- Must enroll in a HDHP and meet other qualifications to have one
- May be subject to fees from the provider
- If you use your HSA for non-qualified expenses over age 65 you'll owe an additional 20% tax penalty on top of any taxes due

### Healthcare FSA Advantages

- __Double tax savings__: Contribute funds pre-tax, withdraw funds pre-tax for qualified expenses
- __Health plan agnostic__: Can enroll in one if your employer offers it, do not need to have a specific type of health insurance plan

### Healthcare FSA Disadvantages

- Only available from an employer, can’t have one if you are self-employed
- Employer owned, means you lose the account if you change jobs
- Subject to use-it-or-lose-it rules, meaning you lose funds if you they are not used during the plan year

## Align Your Goals with Your Savings

FSAs and HSAs can both play a major role in being able to save money for healthcare expenses. If your employer offers an FSA, and you know you’ll have some qualified expenses in the plan year, it could be a good option for you. If you are enrolled in a HDHP and want a great way to save for planned expenses and retirement, an HSA could be a good option for you.

No matter which you choose, it is always smart to plan out your spending and savings appropriately so you can reach your financial goals.

Maximizing contributions to your Health Savings Account (HSA) can be a great way to save. HSAs are tax-advantaged savings accounts. They allow you to spend money on qualified medical expenses and save for retirement. If you are enrolled in a high deductible health plan (HDHP), and meet a few other requirements, you can open and contribute to an HSA.

Calculating your annual HSA contribution may seem as easy as knowing the IRS limit. However, your HSA contribution maximum can change if your coverage or status changes throughout the year. 

## 2021 HSA Contribution Limits

The IRS determines the annual contribution limits for HSAs. These limits depend on your age and whether you have family HDHP coverage or not.

Contribution limits are for the tax year. The amount you can contribute is based on your status and eligibility on the first day of each month. 

You can make the full contribution if you were HSA eligible for the whole year, or if you meet the qualifications of the “last month rule” (read on for more info on that rule). If you are eligible for part of the year, you will be subject to a prorated contribution limit.

![2021 Contribution Limits](//images.ctfassets.net/6j8y907dne6i/QprcDaIWCreUHXpT9zLu6/7d16a044d7e6860e5a556c716ed65bdc/chart_5.svg)

## Changing Eligibility Status Mid-Year

Your contribution maximum can change if your HSA eligibility changes during the year. This means if you either gain or lose eligibility at any time during the tax year.

Some people become HSA eligible because they get new insurance coverage at work. HSA eligibility always starts on the first of a month following eligibility. Here's an example:

> If you enroll in a HDHP on June 15, and you meet all eligibility requirements, you are HSA-eligible on July 1. 

Some people lose their HSA eligibility because they enroll in Medicare coverage. To be HSA qualified a HDHP must be your only coverage. Enrolling in Medicare would make you ineligible to contribute to an HSA.

> If you enroll in Medicare starting June 1, you are ineligible to make HSA contributions for the month of June. 

## Changing Coverage Type Mid-Year

Your maximum HSA contribution can change when changing insurance coverage from an individual to a family plan or vice versa.

Some people may start out the year with an individual HDHP, but end up switching to a family plan because of a qualifying life event. This could include marriage, a spouse’s loss of coverage, or the birth of a child. Here's an example:

> You switch from individual to family coverage on April 15. That means on April 1 you were eligible for the individual limit, but on May 1 you will be eligible for the family limit.

Some people may start out the year with family HDHP coverage, but end up switching to individual coverage. This could include divorce or a spouse gaining other coverage. Here's an example:

> You switch from family to individual coverage on April 15. That means that on April 1 you were eligible for the family limit, but on May 1 you will only be eligible for the individual limit.

## Calculate Your Max Contribution Step-by-Step

Use the guide below to calculate your maximum HSA contributions for the year. To provide an example, we will use a person who is going from individual to family coverage on July 15.

### Step 1: Figure Out Your Eligibility Month-by-Month

For the first day of each month, determine if you will be HSA eligible, and for what type of plan. 

Example scenario: 

![mid-year-hsa-changes](//images.ctfassets.net/6j8y907dne6i/4L8XLAw5MBzS9Svu6yjaKq/992ddb01d65b33a16ffb848ef392b70f/Chart_1.svg)

### Step 2: Calculate Your Monthly Max

Take the annual limit for each coverage type (individual or family) that you have, and divide by 12 to get the monthly limit. 

Example Scenario:

> Individual, $3,600/12 = $300 per month
> Family, $7,200/12 = $600 per month

### Step 3: Add a Catch-up Contribution, if Applicable

If you are over age 55, you may contribute an extra $1,000 per year.  If you were only eligible to contribute for a portion of the year, you must calculate how much catch-up contribution you can make. 

> $1,000/12 = $83.33
> $83.33 for each month you were eligible. 

### Step 4: Add All Months Together

Now take the contribution limits for each month and add them together to get the total contribution limit for the year.

Example scenario: 

![Adding-Prorate-HSA](//images.ctfassets.net/6j8y907dne6i/55T0PgZGRtrpulm1ymOcHk/d3f8708050ea2424fb93b035551e352a/Chart_3.svg)

## The Last Month Rule

There’s an important caveat to the info above — the “last month rule” (also called the “full contribution rule”). The last month rule says if you are HSA-eligible on December 1, then you can choose to contribute the full amount for the year, even if you weren’t eligible for the whole year. 

There is a required testing period of twelve months. This means you must stay eligible through the end of the next year, or else you will face taxes and penalties.  

The last month rule presents an opportunity for you to weigh the risks and rewards of making a  full contribution. If you foresee no change to your job or eligibility status, then it may be the right thing for you to do. 

It's a good opportunity for you to build up your HSA savings. But if you are planning on changing your job or changing your coverage, then it may not be the right move.

## Maximize Contributions to Maximize Savings

Maximizing contributions to your HSA can be an important part of  financial planning. You can save money by using HSA funds on qualified medical expenses, grow your funds over time by investing your HSA, and save for retirement. 

It’s important to make sure you follow IRS contribution limits, or else you could be facing taxes and penalties. Knowing your eligibility status and doing a few calculations, can keep you informed and aware of your limits.


__Editor's Note:__ This article was originally published on March 17, 2018. We have edited this piece with up-to-date contribution limits and information. 

---

A [health savings account](https://livelyme.com/what-is-hsa) (HSA) can be a great way to save money for medical expenses. It is important to understand the rules and regulations that come with having an HSA.  In this article, we’ll dive into the basics of HSA contribution limits. We will also break down all the nuances that come up if you gain or lose HSA eligibility throughout the year. 

__Contents:__

- [HSA Eligibility](https://livelyme.com/hsa-contribution-limits-mid-year-changes#hsa-eligibility)
- [HSA Contribution Limits](https://livelyme.com/hsa-contribution-limits-mid-year-changes#hsa-contribution-limits)
- [Mid-Year Changes in Eligibility](https://livelyme.com/hsa-contribution-limits-mid-year-changes#mid-year-changes-in-eligibility)
- [Mid-Year Changes in Coverage Type](https://livelyme.com/hsa-contribution-limits-mid-year-changes#mid-year-changes-in-coverage-type)

## HSA Eligibility

Being eligible for an HSA means you currently have the qualifications to open and contribute to an HSA. It doesn’t mean that you already have an open account or that you can contribute indefinitely.

The main factor that makes you eligible for an HSA is being enrolled in a qualified high deductible health plan (HDHP). There are a few other factors that come into play as well. If you aren’t sure if you’re eligible, check out our article on HSA eligibility requirements. 

Below is a chart detailing 2021 HSA-qualified health plans:

![2021 qual hdhp table](//images.ctfassets.net/6j8y907dne6i/5bVKolutH7liEKIKKxyZRZ/b2b251cdd97f5ec709631ca2e258d780/2021_qual_hdhp_table.svg)

HSA eligibility always starts on the first of a month. For example, if you enroll in a HDHP on June 15, and you meet all eligibility requirements, you will be HSA-eligible on July 1. 

## HSA Contribution Limits

There are a couple of factors that affect how much you can contribute to your HSA. Contribution limits for HSAs depend on your age and whether you have family or individual only coverage. Contribution limits apply to the calendar year (and tax year). The following limits are for 2021.

![2021-contribution-limits](//images.ctfassets.net/6j8y907dne6i/1a0iTXII4MfjYn6GqsRVkr/f0aa0aa5bcb6da4bb7e5efc94d9316e3/chart_5.svg)

## Mid-Year Changes in Eligibility

If you are HSA qualified all year long and have an open account, the contribution limits are pretty straightforward. 

### Becoming Eligible Mid-Year

Becoming eligible for an HSA mid-year is a common occurrence. It may happen if your employer changes insurance plans mid-year, or if you get a new job with a different insurance plan. 

Remember, HSA eligibility always starts on the first of the month. Let’s say you got a new job with an individual HDHP and you meet all HSA eligibility requirements. You enroll in the plan on June 15, and you become HSA-eligible on July 1. 

Let’s say you stay at the job all year and your insurance plan and eligibility don’t change. That means you are HSA-eligible for six months (July, August, September, October, November, and December). 

Your contribution amount will be prorated. 

Here's how this works out:

<div align="center">Individual Contribution Limit for 12 months = $3,600

$3,600 x 6/12 = $1,800</div>

So your contribution limit for this year will be $1,800, because you became eligible on July 1.

Your maximum amount you can contribute for this year will be $1,800, because you became eligible for an HSA on July 1.

Another way to think of this is to break down the contribution limit from annually to monthly. 

If the limit is $3,600 for the year, that is the same as contributing $300 every month. 

<div align="center">$300 x 6 = $1,800</div> 

Of course, there are no contribution limits by month, but this can be an easy way to remember how to prorate your contribution limit.
Don’t like manual math? 

<div align="center"><a href="https://livelyme.com/signup-eligibility">Use Lively's Contribution Calculator</a></div>

### Losing Eligibility Mid-Year

The same prorating happens if you stop being HSA-eligible mid-year. This happens often for people enrolled in medicare coverage.

Here's a real-life example:

Let’s say you start the year with an HSA, then lose your eligibility on September 15. You were HSA-eligible for nine months of the year, including September, as you were eligible on the first day of September. 

Here’s how the math looks for an individual over the age of 55: 

<div align="center"> $3,600 x 9/12 = $2,700 </div>

Plus, you can make a $1,000 annual HSA catchup. Prorated, that is: 

<div align="center"> $1,000 x 9/12 = $750</div>

Your total contribution limit would be $2,700 + $750 = $3,450

### Temporarily Losing Eligibility

There are a few things you could do that may make you temporarily ineligible for an HSA. This includes receiving medical benefits from a Veteran’s Affairs or an Indian Health Services facility. You are not eligible to contribute to an HSA if you received medical benefits from one of these entities in the preceding three months.  

For example, let’s say you had an injury and received treatment at a VA hospital on June 5. You cannot contribute to your HSA for the months of July, August, and September.

But you can contribute for June, as you were eligible on the first of the month. So that means that for an individual, you can only contribute $2,700 for the year, instead of $3,600.

### The Last Month Rule

There’s an important caveat to the info above — the [Last Month Rule](https://livelyme.com/last-month-rule) (also called the “full contribution rule”). The last month rule says if you are HSA-eligible on December 1, then you can choose to contribute the full amount for the year, even if you weren’t eligible for the whole year. 

The catch? There is a testing period of twelve months. This means you must __stay eligible through the end of the next year__, or else you will face taxes and penalties. 

For example, let’s look at the individual above who became HSA-eligible on December 1. They choose to contribute the full $3,600 for the year. They must continue to be eligible all the way through December 31, 2021. If they don't, their excess contributions will be taxable and subject to a 10% penalty. 

The last month rule presents an opportunity for you to weigh the risks and rewards of making a  full contribution. If you foresee no change to your job or eligibility status, and you want to build up your HSA savings, then it may be the right thing for you to do. But if you are planning on changing your job or changing your coverage, then it may not be the right move.

## Mid-Year Changes in Coverage Type

A prorated contribution limit also applies if the type of coverage you have changes. This happens if you switch from an individual to a family insurance plan or vice versa.

### Switch from Individual to Family Coverage

Let’s say you start the year with individual coverage, then you get married. You switch to family HDHP coverage on May 15. This means you spent the first five months of the year eligible for individual contribution limits and the rest of the year eligible for family contribution limits. 

Here’s how the math breaks down: 

<div align="center"> $3,600 x 5/12 = $1,500

$7,200 x 7/12 = $4,200

$1,500 + $4,200 = $5,700 total contribution limit for the year</div>

The last month rule does apply to this situation. So if you feel confident you will remain HSA-eligible with a family plan through the last day of the next year, then you may want to contribute the full $7,200 for the year. 

### Switch from Family to Individual Coverage

Let’s say you switch from family coverage to individual coverage starting May 15. That means you spent five months with family coverage and seven months with individual coverage.

Here’s the math:

<div align="center"> $7,200 x 5/12 = $3,000

$3,600 x 7/12 = $2,100

$3,000 + $2,100 = $5,100 total contribution limit for the year</div>

## Staying on Top of Contributions Now Can Prevent Headaches Later

The most important thing to remember about contributions to your HSA is to stay informed and proactive. It's easy! Calculate exactly how much you want to contribute for the year and know when you want to make those contributions.

Many choose to contribute automatically with every payroll. Others choose to do it all in one lump sum at the end of the year. Some choose to max out their HSA. Others choose to contribute a lower amount to focus one other financial goals.

Whatever you do, staying informed of your choices and proactive about your decisions is always a wise move.

Mid-year HSA Changes: How Status Affects Annual Contribution Limits

So you’ve made the choice, you’re ready for an HSA. Now you have to figure out how to open and establish an HSA so you get the most benefits possible. You already know you have to enroll in a qualified high deductible health plan to open an HSA. But there’s one step you may not be aware of—funding your HSA the same day you open it.

That may sound expensive, but in reality all it takes is one cent to establish your HSA. This ensures you can use it on qualified medical expenses moving forward. It's important to establish your HSA if you expect to have any large medical expenses close to your account opening date.

## HSA Overview

A Health Savings Account (HSA) is a tax-advantaged savings account. That means you can contribute funds tax free, grow funds tax free, and use funds for qualified medical expenses tax free. Those are some pretty big tax advantages for healthcare. 

You are [eligible](https://livelyme.com/hsa-eligibility-requirements) to open an HSA if you are also enrolled in a HSA-qualified [high deductible health plan](https://livelyme.com/what-is-a-high-deductible-health-plan-hdhp) (HDHP). You have to be enrolled in an HSA-eligible high deductible health plan to open and contribute to an HSA. But once you have opened and established an HSA, it’s yours to keep, for life.

If you switch to a non-qualified health insurance plan, you will not be able to contribute. However, you can still use the funds in your HSA to pay for qualified medical expenses.

### HSA Contribution Limits

![hsa-contribution-limits](//images.ctfassets.net/6j8y907dne6i/1QT5c25ZrUOQmG0mUcfCZX/f5e8c5453dac6f8d1ff64d7382fbb038/hsa-contribution-limits.jpg)

The IRS determines HSA contribution limits. Those limits often change year to year. For the 2021 tax year, those contribution limits are:

- $3,600 for an individual
- $7,200 for a family

A [Catch-Up Contribution](https://livelyme.com/what-is-an-hsa-catch-up-contribution) of an additional $1,000 if you (or another member of your family on the plan) is 55 or older

Check out our article [What is an HSA?](https://livelyme.com/what-is-hsa) if you need more of a refresher on the ins and outs of HSA accounts.

## What It Means to Establish an HSA

Before we dive into the idea of establishing an HSA, it’s important to know that HSAs are a type of trust. Because they are a trust, this means that the state laws govern the regulations of an HSA. Each state has a different definition of what it means to establish an HSA. In most states, you must do two things to establish an HSA:

1. Sign up to open an account
2. Deposit at least $0.01 into the account

This may sound obvious, but you also have to be eligible to have an HSA and withdraw funds from it. In summary, you must be enrolled in a qualified HDHP, open an HSA, fund the HSA, and be eligible to withdraw funds for your HSA to be considered established.

### Key Dates to Remember

![key-dates-to-remember](//images.ctfassets.net/6j8y907dne6i/5Ssp2nC0vgrIegCWlOVRx3/f39131a7ad77cda2ebb8f188a640b057/key-dates-to-remember.jpg)

There are some key dates you should pay attention to as you go through the process of establishing an HSA. They are:

- __Health Plan Start Date:__ You are eligible to contribute to an HSA on the first day of the first month that you meet all [eligibility requirements](https://livelyme.com/hsa-eligibility-requirements). Let’s say you enrolled in an HSA-eligible health plan like an HDHP on January 15. You are not eligible to contribute to your HSA until February 1st. You must then ‘establish’ your HSA to start reimbursing eligible expenses.
- __HSA Establish Date:__ The most important thing you can do (once you qualify to open an HSA) is to establish an HSA. “Establishing” means different things and unfortunately varies state by state. In some states, it’s as simple as opening up an account. In other states, it means you have to open the account and fund it with as little as $0.01. This is called “penny funding” and meets all federal government requirements for establishing an HSA. If you have any questions regarding this in your state, we recommend finding local tax advisors to help you.
- __Reimbursement Date:__ This date is important so you know exactly when you can use HSA funds for expenses. Any costs (based on purchase date), post-HSA established date are considered eligible expenses. Establishing an HSA adds more flexibility to your healthcare payment options. Find out using our ["What's Eligible?"](https://livelyme.com/whats-eligible) tool.

Not sure what requirements you have to meet? Check out our [eligibility guide](https://livelyme.com/hsa-eligibility-requirements).

In an ideal world, all three of these dates may be the same. If they're different, it's important to keep track of things so you know what expenses are eligible and what isn't.

## The Importance of Establishing an HSA

![establishing-an-hsa](//images.ctfassets.net/6j8y907dne6i/3VV3HLGhfjWtLcKUsgOgAk/d84dc4e3ce7d49d2c47a9d8084e99f75/establishing-an-hsa.jpg)

The reason why it's so important to establish your HSA is that you can use HSA funds for expenses incurred before your account had money in it. You can back-date your expense and [reimburse yourself later](https://livelyme.com/hsa-reimbursement-rules) when you do have funds in your account.

The most common way people contribute to an HSA is with pre-tax payroll deductions through an employer-sponsored plan. If you cannot contribute through payroll deductions, you’ll contribute after tax. These contributions are eligible for a tax deduction through your annual income tax. 

After that, funds grow in your HSA tax free. You can also create an [investment account](https://livelyme.com/how-does-a-health-savings-account-work) for those funds. You can distribute funds tax free to spend on qualified medical expenses at any time. If you’re over age 65, you can use the funds on anything, but you will have to pay regular income tax, just like a 401(k). Establishing an HSA adds a lot more flexibility for retirement and specifically for healthcare costs.

## Open Now So You Can Save Tomorrow

There is a lot to take into consideration when you open an HSA. Knowing the difference between opening and establishing your HSA is one of them. Your HSA can be a great way to save money for healthcare expenses now and save money for retirement long term. As long as you pay attention to the details and establish your HSA correctly, you’ll have a valuable savings tool for years to come.


Are you making the most of your FSA or HSA? If you have a Health Savings Account ([HSA](https://livelyme.com/what-is-hsa)) or Healthcare Flexible Spending Account ([FSA](https://livelyme.com/what-is-a-healthcare-fsa)), you know you can use them for common medical expenses. This includes copays, medical equipment, and prescription costs. You also know you can't use these account to pay for premiums or for non-healthcare expenses. But did you know that you can also use them for some healthcare-related travel expenses? 

It’s true! You can use your HSA or FSA funds to pay for eligible medical-related travel expenses. This is a unique feature of HSAs and FSAs. You cannot use a [Dependent Care FSA](https://livelyme.com/what-is-a-dependent-care-fsa) or a [Limited Purpose FSA](https://livelyme.com/what-is-a-limited-purpose-fsa) to pay for healthcare-related travel.

## FSA and HSA Eligible Travel Expenses

![fsa-hsa-travel-expenses](//images.ctfassets.net/6j8y907dne6i/4kws3Kx468LN6W9NQdEILC/c430b77c5db1c87a3070d9e860b62278/fsa-hsa-travel-expenses.jpg)

There are three things to ask yourself when thinking about healthcare travel expenses:

1. Is this treatment "necessary"?
2. Is this treatment "reasonable"?
3. Is this treatment "eligible"?

The definition for "necessary" is pretty self-explanatory. That means your travel is for a needed medical treatment. This treatment is a must-have, not a nice-to-have. 

"Reasonable" means you aren’t taking a private plane to the best hospital in the country. It’s more like you’re taking a Lyft to Urgent Care or driving an hour to a specialist one city over. 

"Eligible" means the IRS determines it is an eligible and qualified expense. You can check [IRS Publication 502](https://www.irs.gov/publications/p502) for more information on what is eligible. 

There are a few different types of travel-related expenses that may be eligible under your HSA or FSA. Remember, all transportation expenses are relevant to you receiving health care. The primary purpose for eligible travel must be for receiving medical care. You can use your FSA or HSA to pay for qualified travel costs associated with a dependent's care.

![use-hsa-travel-expenses](//images.ctfassets.net/6j8y907dne6i/3PK8okTZ6HsSr6kwrRrm3c/8dbaaddd9b18ce300d9353073135fca0/use-hsa-travel-expenses.jpg)

Some common eligible travel expenses include:

- Rideshare apps, public transportation, taxis, trains, ferries, and rental cars
- Tolls, if a toll route is the only way to get to the facility
- Parking fees
- Fuel costs from driving your personal vehicle

Here are some travel expenses that are NOT eligible:

- Vehicle maintenance, repair, or depreciation
- Personal expenses, like meals on the road
- Auto insurance
- Tickets or other penalty fees charged 
- Anything not related to getting medical care. You cannot get reimbursed for a vacation where you happen to go to the doctor. Your travel must be for, and essential to, medical care.

## How to Receive a FSA Travel Reimbursement

![hsa-travel-expenses](//images.ctfassets.net/6j8y907dne6i/4zGiiSgPMvIVAe7UOdIhsl/116236f44086984dfef73e85a23eab2f/hsa-travel-expenses.jpg)

You can’t use your FSA debit card to pay for travel like you can for other eligible expenses. You must pay out of pocket and save your receipts to submit for reimbursement. It’s a good idea to use a debit or credit card so you have a detailed record of that transaction. Make sure your receipts show the provider, date, and amount you paid -- and don’t lose any! If you don’t have the proper documentation, you likely will not receive reimbursement. 

To receive reimbursement for fuel costs, keep a mileage log with receipts for gas. You can either work out your exact fuel costs for miles driven or you can use the IRS’ [standard mileage deduction](https://www.irs.gov/newsroom/irs-issues-standard-mileage-rates-for-2020). 

As of January 1, 2020, mileage for travel to and from eligible healthcare services receive reimbursement at $0.17 per mile. Google Maps or other map services on your phone can be a great way to document and calculate your miles.

## How to Use Your Hsa for Travel Expenses

![fsa-travel-reimbursement](//images.ctfassets.net/6j8y907dne6i/799zy5ij03zWuSJJPi8HgW/fd34e2893870e421d4eb1e9915c02d8d/fsa-travel-reimbursement.jpg)

If you have an HSA rather than an FSA, you can still use it for the eligible travel expenses discussed above. The process for using the funds may look a little different.

With FSAs, you can only use your plan debit card in limited places. So you have to gather receipts and submit them for reimbursement. With HSAs, you own the account, not your health plan. Because of this, you can use the associated debit card at more places. It is possible that you’ll be able to pay for eligible travel expenses with your debit card.

If you can't use your HSA debit card, pay for the expense out-of-pocket. Save your receipts so you can reimburse yourself through your HSA later. Make sure you keep your receipts handy. In the event you're ever audited by the IRS, you will need proof that your expenses are eligible.

## Other FSA and HSA Eligible Expenses You May Not Know About 

Here are some other less common expenses that you may not be aware are healthcare FSA or HSA eligible:

- __Guide dogs__: This includes the costs of buying, training, and maintaining a guide dog.
- __Braille books and magazines__: You can use your HSA or FSA to pay for the difference in cost between the regular version and the braille version.
- __Drug addiction treatment and counseling__: This includes detoxification, counseling, and self-help groups. 
- __Certain at-home test kits__: This includes fertility tests, hearing tests, and more. 
- __Nursing home__: Many types of skilled nursing facilities are eligible.

![uncommon-hsa-expenses](//images.ctfassets.net/6j8y907dne6i/5j6CMTxM479C8q86zNY1kT/78b2c5acdc5c29910445c4e9fecbc170/uncommon-hsa-expenses.jpg)

And a few that are NOT eligible: 

- __Diapers and diaper services__: This service isn't eligible for reimbursement unless used to treat a specific medical condition caused by a mental or physical disability.
- __Weight loss programs__: You must have a Letter of Medical Necessity (LMN) for this to be eligible.
- __Special food__: You must have a Letter of Medical Necessity (LMN) for this to be eligible.
- __Health club dues__: This expense is not eligible for reimbursement unless used to treat a specific medical condition. 

## Make the Most of Your FSA and HSA

Using your FSA or HSA to pay for eligible travel-related expenses is a good way to get the most out of your account. Since you are using pre-tax funds, you are lowering your out-of-pocket costs.

Ensure you are getting the most out of your tax advantaged accounts. If you travel for medical reasons and don’t use your FSA or HSA to pay for expenses, you could be missing out on major savings.

There are a few major benefits that come with having and using a Health Savings Account (HSA). Some of these HSA benefits include saving on taxes for health care costs, planning for retirement, and staying in control of your money. If you need a refresher on some basics before diving into the details of these advantages, check out our [HSA Guide](https://livelyme.com/hsa-guide). 

## Benefit 1: Save on Medical Expenses 

![save-medical-expenses](//images.ctfassets.net/6j8y907dne6i/ZogRXr7ukmM9TFjXsrDO9/012a3b978c7879b6fa77ceb51994c7d8/save-medical-expenses.jpg)

One of the major benefits of an HSA (that you may already be familiar with) is that it’s funded with pre-tax money. That means that you save money every time you use your HSA to pay for health care expenses. 

To open an HSA you must also enroll in a qualifying High Deductible Health Plan (HDHP). Plus you must meet a few other requirements laid out in [IRS Publication 969](https://www.irs.gov/pub/irs-prior/p969--2019.pdf). A HDHP can lead to a higher out-of-pocket healthcare cost as you work towards paying the deductible. That is why you can open an HSA to help pay towards your higher deductible. 

If you have an employer sponsored HSA , make sure you select to open an HSA during open enrollment. If you don’t, you may miss your chance to receive free money from your employer. During enrollment you will choose how much you want to contribute to your HSA. Most often, your contributions are made every pay period via payroll deductions. 

One of the reasons an HSA is so beneficial is that you own it and can keep it as long as you’d like. You can only open an HSA and contribute funds while enrolled in a HDHP, but you can use those funds anytime. This means you can save money on medical expenses now and in the future. 

## Benefit 2: Save on Taxes

![save-on-taxes](//images.ctfassets.net/6j8y907dne6i/6haZDs4RakR7Il2PdPSnLs/252c5222b8f3982486419e4a7ef636ee/save-on-taxes.jpg)

HSAs have a “triple tax advantage.” This means you save on taxes when you contribute, as your money grows, and when you withdraw funds. 

1. __Contribute pre-tax funds.__ Once you’ve opened an HSA you can begin contributing funds. Many choose to have HSA contributions deducted from every paycheck. You can also elect to make a one-time contribution if needed. If you have an employer sponsored healthcare plan, they can take your contributions out of your paycheck on a pre-tax basis. If you enroll in a private market plan, then your contributions are [tax deductible](https://livelyme.com/is-my-hsa-tax-deductible).

The Internal Revenue Service (IRS) determines the contribution limits for HSAs every year. The maximum contribution for an individual in 2021 is $3,600. If you have family coverage that maximum goes up to $7,200. If you are over 55 you can also make an additional catch up contribution of $1,000. 

2. __Grow your funds tax-free.__ Earnings in your HSA from interest and investments are tax-free. This makes an HSA a great way to save for the future, as you won’t be paying tax on your money as it grows.
3. __Withdraw funds tax-free when using them on qualified expenses.__ HSA funds that used to pay for qualified healthcare expenses are not subjected to taxes. This is true at any age and for any qualified expense. The IRS determines what counts as qualified healthcare expenses. This includes deductibles, copays, prescriptions, and much more. For a full list, check out our guide to “[What’s Eligible](https://livelyme.com/whats-eligible).”

## Benefit 3: Grow Your Money

![grow-your-money](//images.ctfassets.net/6j8y907dne6i/66QBVCZhKerB3HcMIR76vu/3cd74df33b06b7617764022815b7fb92/grow-your-money.jpg)

You can invest an HSA, which is a fact that some may not realize. Only a little over [4% of HSAs](https://www.devenir.com/research/2019-midyear-devenir-hsa-research-report/) in the U.S. have some part of their funds invested. The other 96% of HSA account owners could be leaving money on the table. We recommend chatting with your financial advisor before investing. Everyone's financial situation is different, and they can help choose what's the best. 

How much you contribute to your HSA will also depend on your personal financial situation and long term goals. If you know you will be having an expensive medical cost soon, it may be smart to have more liquid assets in your HSA to pay for those expenses. If you don’t foresee spending much, it could be a good idea to invest more of the money in your HSA. If your employer offers any kind of contribution or match to your HSA, make sure you take advantage of that extra funding. 

It's important to note that investing funds is never a sure thing. There is a possibility that conservative investing can help your money grow faster than by earning interest alone. This can help you reach your retirement goals earlier or build up your HSA balance to pay for a big medical expense in the future. 

## Benefit 4: Maintain Control of Your Money

![maintain-control-of-money](//images.ctfassets.net/6j8y907dne6i/4XGjZC1jFxOUq7Ddxt4zAo/65af3c0aa7859cc381f8508ccaabf7a4/maintain-control-of-money.jpg)

Unlike an [FSA](https://livelyme.com/blog/employer/hsa-vs-fsa-infographic-employees), you own your HSA account and can take it with you when you move from one employer to the next. This means you maintain control of your funds and can plan out how you want to save or spend across your lifetime. You are in charge of how much you want to contribute, if you want to invest, and when and how you use your HSA.  

Plus, HSAs don’t have [use-it-or-lose-it](https://livelyme.com/hsas-vs-fsas) rules like FSAs. If you don’t spend funds in a given year, they stay in your account for the future. This is an essential aspect of planning for long-term medical expenses. You can build up your savings when you are in a position to do so, like when you may have more income and fewer expenses. Then you don’t have to touch them if you don’t want to. They will be waiting for you to use when you need them down the line.

## Benefit 5: Save for Retirement

![save-for-retirement](//images.ctfassets.net/6j8y907dne6i/47QlkwaBMwtgpzEQgr1nRz/ba221365e801d49207747533f97a626a/save-for-retirement.jpg)

At any age, you can use HSA funds for qualified medical expenses tax-free. As we get older, we tend to have more medical-related expenses pop up. An HSA can be a great way to plan on taking care of those expenses. It even works for many expenses that Medicare and other health insurance plans don’t cover. 

If you use HSA funds for non-qualified expenses before the age of 65, you will receive a 20% tax penalty on those funds. After the age of 65, that penalty no longer exists. You can use your HSA funds for something other than a qualified healthcare expense and pay regular income tax as you would with a 401(k) or IRA.

This is a feature that makes HSAs particularly good for saving for retirement. You can contribute money knowing that it's likely you’ll have medical expenses come up as you age. But if you have an unforeseen expense come up during retirement, you also have those HSA funds available. It’s a win-win.
As you can see, there are many benefits that come with having an HSA. From saving money to planning for retirement, there are many reasons to consider opening an HSA today.


How does an HSA work? If you’re looking to learn how to enroll, contribute, and spend your Health Savings Account (HSA), you’ve come to the right place. Need to know the basics? Check out our post “[What is an HSA](https://livelyme.com/what-is-hsa)?” to get all the info. Once you’re ready for some details about how exactly an HSA works, read on.

## HSA Defined

HSA stands for Health Savings Account. An HSA is a personal savings account that lets you set aside money pre-tax to use for qualified health expenses. HSAs are interest-bearing, which means you get paid interest on how much money you have in your account. Plus, your HSA funds grow tax free.

That’s good news because once you have an HSA, you get to keep it even if you change jobs. That makes HSAs a great way to save money for healthcare expenses as you get older. 

So how much can you put in your HSA? That’s up to the IRS. The IRS sets [annual contribution limits](https://www.irs.gov/publications/p969), so you can only contribute as much as they allow. The contribution limit changes each year, and once you turn 55, you can contribute an extra $1,000. 

However, once you are 65 and enroll in Medicare, you cannot keep contributing to your HSA. But the good news is that you can continue using your HSA funds for the rest of your life.

## How to Enroll in an HSA

![how-to-enroll-in-hsa](//images.ctfassets.net/6j8y907dne6i/5HmNLvC2u3AiHxoDge27qt/3cec9c2044ee6217421f4c7ef3c6b835/how-to-enroll-in-hsa.jpg)

To enroll in an HSA, you have to also enroll in a [High-Deductible Health Plan](https://livelyme.com/what-is-a-high-deductible-health-plan-hdhp) (HDHP). High Deductible Health Plans are health plans with lower premiums and higher deductibles. The IRS sets out guidelines each year to determine what qualifies as an [HSA-eligible](https://livelyme.com/what-is-hsa) High Deductible Plan. 

An HSA can help you with some of the costs of having a higher deductible, but it’s also a long-term way to save money for medical expenses. If you don’t have an HDHP, but still want to save funds tax-free for healthcare expenses, you may want to consider a [Healthcare FSA](https://livelyme.com/hsas-vs-fsas). 

If your employer offers an HSA alongside your HDHP, you can enroll with them. During the enrollment process, you will choose how much you want to contribute monthly to your HSA for the year. The contributions will be deducted from each paycheck. You’ll also get instructions on how to use your new account. 

If your employer doesn’t offer an HSA, or you bought your health insurance plan on the private market, don't worry. You can [open an HSA](https://secure.livelyme.com/signup/start) independent from your employer. If you choose to contribute pre-tax, you will have to coordinate with your HR team.

## How to Add Money to Your HSA

### Annual Contribution Limits

There are a few different ways to contribute to your HSA. No matter which method you use, remember there are annual contribution limits. In 2020 that is $3,550 for an individual under 55. 

For someone who has family coverage with their HDHP, that limit increases to $7,100. 

If you’re 55 and older, you can also make a catch-up contribution. The IRS decides how much that additional amount can be, and in 2020 and 2021, it is $1,000. You can add a catch-up contribution to your regular contributions or make it a one-time thing.

### How Funds Are Contributed to an HSA

![how-to-add-money-hsa](//images.ctfassets.net/6j8y907dne6i/4OeRZKMXWJXZ131vVQoBDD/7bc148cef567787885d1c9e48343da0b/how-to-add-money-hsa.jpg)

There are five different types of contributions that are important to know about:

- __Payroll Contributions:__ This is a convenient way to contribute, but it does require an employer-sponsored HSA. First, you set your annual contribution amount upon enrollment. Then the pre-tax funds are deducted from your paycheck via payroll and deposited into your HSA.
- __Individual Recurring Contribution:__ This method is an option for someone who does not have an HSA with an employer. In this case, your contributions are withdrawn from your bank account. Only your employer can deduct pre-tax money (via payroll), so these funds will be contributed post-tax. But because HSA contributions are considered to be pre-tax, whatever amount you contribute will be [tax-deductible](https://livelyme.com/is-my-hsa-tax-deductible). So make sure you take note of that for your tax return.
- __Employer Contributions:__ If you’re lucky, your employer may also make contributions to your HSA. These contributions are also pre-tax, so they don’t impact your taxable income. It’s essential to know how much your employer is contributing so you can adjust your contributions. Both contributions combined from you and your employer still can’t go over the IRS annual contribution limit. 
- __One Time Contributions:__ Whether you have an employer-sponsored plan or a private one, you can also make one time contributions to your HSA. One time contributions are what they sound like—you contribute a lump sum whenever you decide. This may be a good option if you expect to have a significant medical expense. 
- __Third Party Contributions:__ Your family or friends (or anyone else) may also contribute to your HSA. Maybe you have a parent who generously wants to help you save for retirement. Or a close friend who wants to contribute to your medical expenses. Whatever the situation may be, anyone is welcome to contribute funds to your HSA.

## How to Spend Your HSA

There are many ways to use the money in your HSA for qualified healthcare expenses. Exactly how you use it will depend on the rules set out by your plan administrator. Here are some of the common methods used to spend HSA funds:

1. __Debit card__: Most HSA platforms provide individuals with a [debit card](https://livelyme.com/hsa-debit-card/) to quickly and easily pay for qualified health expenses.
2. __Receipt upload or reimbursement:__ It's important to always save your receipts. If you make a qualified expense without your HSA debit card, you can ask for reimbursement for the out-of-pocket expense. Make sure to save your receipts so you can substantiate any expenses later.
3. __Save the funds for later:__ One of the major advantages of HSAs is that they are personal accounts that stay with you as you age. Medical costs often grow as we age, making an HSA a valuable retirement planning tool. You can contribute funds until you are 65, but you can only use them for qualified medical expenses. If you use them for anything else, you can incur a 20% tax penalty. 

Once you are 65 and enrolled in Medicare, you can use the funds for healthcare expenses OR anything you want. If you want to get a triple tax benefit, you will still need to use the funds for qualified healthcare expenses, as these are never taxed through an HSA. If you use the funds for something else, they are only subject to regular income taxes (like a Traditional IRA). There’s no penalty like when you are under the age of 65. 

Remember, HSAs do not have a "use it or lose it" policy like [FSAs](https://livelyme.com/flexible-spending-account-rules). __So don’t feel pressured to use your funds within the year.__ You own your HSA account and can take it with you when you change jobs or HSA providers. 

## The Long Term Value of an HSA

![long-term-value-hsa](//images.ctfassets.net/6j8y907dne6i/4VQJANxILqHlg2yPsWUpmf/936f21bc25299310a7c4edbb86180699/long-term-value-hsa.jpg)

HSAs are a fantastic retirement planning tool because they are triple tax advantaged. This refers to the three ways they are tax-free: 

- You make pre-tax (or tax-deductible) contributions
- The money grows interest tax-free
- You can make tax-free distributions for qualified healthcare expenses. 

Another big benefit is that you can invest the money in your HSA, so it has the potential to grow even more over time. Many people who invest their HSA do so in mutual funds, just like a traditional IRA. We recommend talking to your tax advisor to see what the best plan is for your situation. Overall, HSAs are a great way to save some money, reduce health care costs, and plan for the future.


__Editor’s note:__ This post was originally published on March 4, 2020 and updated on September 28, 2020.

---

So you need glasses. Or a root canal. Or braces. You’re ready to take care of yourself, but you’re wondering, how am I going to pay for this? A Limited Purpose FSA (LPFSA) might be the answer.

## What Is a Limited Purpose FSA?

There’s a good chance you’ve already heard of a [Flexible Spending Account (FSA)](https://livelyme.com/what-is-a-healthcare-fsa). Flexible Spending Accounts are accounts that let you use pre-tax funds to pay for certain out-of-pocket medical expenses. Many employers offer FSAs in addition to a health insurance plan as another way to pay for healthcare expenses.

Limited Purpose FSAs are aptly named — they are FSAs that can only be used for a limited purpose. That limited purpose is paying for qualified dental and vision expenses. LPFSAs can help you save money because they are funded with pre-tax dollars. You can save [up to 30%](https://livelyme.com/is-fsa-worth-it-flexible-spending-account) paying for expenses with an LPFSA versus with after-tax funds (depending upon your tax bracket).

It’s important to remember that you can’t contribute to a [Healthcare FSA and an HSA](https://livelyme.com/hsas-vs-fsas) at the same time. But you __can__ contribute to a Limited Purpose FSA and an HSA at the same time. This can be very beneficial to you. 

You can use your LPFSA to pay for dental and vision expenses while building up your [HSA savings](https://livelyme.com/what-is-hsa). Your HSA savings come with you even after you leave your job, and you can keep using them as you age. __Quick Tip__ — you can’t use both your LPFSA and HSA to pay for the same expense, so make sure you keep track of everything.

![limited-purpose-fsa](//images.ctfassets.net/6j8y907dne6i/aKeRKmHc7aLJgDqqy6CMV/1b069879a90128dff4e5713e0ec28976/limited-purpose-fsa.jpg)

## How Do I Get a Limited Purpose FSA?

You can only have a LPFSA if your employer offers one. Typically it will be in conjunction with a [High-Deductible Health Plan](https://livelyme.com/what-is-a-high-deductible-health-plan-hdhp) and HSA offering. If you want to take advantage of your employer’s LPFSA, you must elect to do so during open enrollment.

At that time, you will choose the amount you want to save for the year. You will be able to see how much pre-tax money will come out of each paycheck to fund the account. Once you have made your selections and enrolled, your employer will fund the account and deduct the contributions from your paychecks accordingly. 

## How Much Can I Contribute to My Limited Purpose FSA? 

You can choose how much to contribute to your LPFSA up to the IRS limit. The IRS contribution limit changes every year. In 2021 it is $2,750. 

Employer contributions to a LPFSA are not included in your annual limit. This means that you can contribute the max $2,750. And have your employer make contributions over this amount if they choose to do so. This is a unique feature of LPFSAs. 

## How Do I Choose How Much to Contribute to My Limited Purpose FSA?

When thinking about how much to contribute to your LPFSA, a good place to start is reviewing all the dental and vision expenses you and your family had during the previous year. Tally up how much you spent out-of-pocket on these costs. Then consider how much you can afford to have taken out of your paycheck this year. This can help guide how much you should contribute. 

It’s important to remember that you must use your contributions by the end of the plan year or else risk losing what’s left. After the plan year, your employer has the option to offer you either a 2.5 months grace period to use the remaining funds OR a $550 rollover of contributions from 2020 to 2021. If you choose to rollover funds from one year to the next, it doesn’t affect the next year’s contribution limit.

Also, keep in mind that once you have chosen a contribution amount you can only change it if there is a Qualified Live Event (QLE). This includes the birth of a child, a marriage, a dependent who has aged out of coverage. Or a parent who has recently come under your full-time care, or your spouse losing their job.

## What Can I Use My Limited Purpose FSA For?

![limited-purpose-fsa-eligible-expenses](//images.ctfassets.net/6j8y907dne6i/6DdM83Gk2a9LZ7oesSKPS4/c122edfddd5fff4a63ca1f9b39784cd1/limited-purpose-fsa-eligible-expenses.jpg)

Once you’ve got a Limited Purpose FSA you may be itching to start spending on your expenses. But you’ve got to make sure you follow the rules when it comes to spending your LPFSA dollars. The IRS decides what counts as a “[qualified expense](https://www.irs.gov/publications/p502)” for Limited Purpose FSAs. You can use your account to pay for the following eligible dental and vision expenses for yourself, your spouse, and your dependents. 

You can use an LPFSA to pay for any qualified medical expenses after you meet your health insurance deductible. Once the health plan deductible has been met, the LPFSA converts into a [Health Care FSA](https://livelyme.com/what-is-a-healthcare-fsa) and can be used for other eligible expenses in addition to vision and dental. 

### Limited Purpose FSA Qualified Expenses: 

__Vision__

- Copays
- Deductibles
- Office visits
- Diagnostic services
- Transportation expenses to receive care
- Eye exams
- [Glasses](https://fsastore.com/SearchProducts.aspx?q=glasses&utm_source=Lively&utm_medium=TPA+Public+Proprietary+EL&utm_campaign=TPA+Partner) and [cleaning tools](https://fsastore.com/Caring-Mill-Lens-Cleaning-Repair-Kit-P27121.aspx&utm_source=Lively&utm_medium=TPA+Public+Proprietary+EL&utm_campaign=TPA+Partner)
- [Contacts](https://contacts.fsastore.com/?utm_source=Lively&utm_medium=TPA+Public+Proprietary+EL&utm_campaign=TPA+Partner) and [solution](https://fsastore.com/SearchProducts.aspx?q=contacts%20solution&utm_source=Lively&utm_medium=TPA+Public+Proprietary+EL&utm_campaign=TPA+Partner)
- Braille books and magazines
- Treatments (prescription and [over-the-counter](https://fsastore.com/All-Over-the-Counter-C480.aspx&utm_source=Lively&utm_medium=TPA+Public+Proprietary+EL&utm_campaign=TPA+Partner))
- Guide dogs (dog, training, care)
- Eye surgery (including laser and Lasik)

__Dental__

- Copays
- Deductibles
- Office visits
- Diagnostic services
- Transportation expenses to receive care
- X-rays
- Non-cosmetic surgery for dental care and reconstruction
- Dentures, bridges, [denture adhesive](https://fsastore.com/SearchProducts.aspx?q=denture%20adhesive&utm_source=Lively&utm_medium=TPA+Public+Proprietary+EL&utm_campaign=TPA+Partner), and [denture cleaner](https://fsastore.com/SearchProducts.aspx?q=denture+cleaner&utm_source=Lively&utm_medium=TPA+Public+Proprietary+EL&utm_campaign=TPA+Partner)
- Treatments (prescription and [over-the-counter](https://fsastore.com/All-Over-the-Counter-C480.aspx&utm_source=Lively&utm_medium=TPA+Public+Proprietary+EL&utm_campaign=TPA+Partner))
- Orthodontia
- [Guards](https://fsastore.com/SearchProducts.aspx?q=mouth%20guard&utm_source=Lively&utm_medium=TPA+Public+Proprietary+EL&utm_campaign=TPA+Partner) for teeth grinding

## How Do I Use My Limited Purpose FSA?

![how-to-limited-purpose-fsa](//images.ctfassets.net/6j8y907dne6i/bsgJqZ2o0zfqtLMkGRl9i/cf9b5c0d67c6fb24935abd3d18b80a3e/how-to-limited-purpose-fsa.jpg)

Limited Purpose FSA funds are distributed either via a debit card or reimbursements. Some employers choose to give you access to your funds with a debit card. You can swipe the payment card to directly pay for out-of-pocket expenses at the provider’s place of business. If your employer doesn’t offer a debit card option then you must pay for your expenses with your personal funds and submit proper documentation to your plan administrator for reimbursement. 

## What Happens If I Leave My Employer?

__Situation 1:__ You leave your employer mid-year, and you have already used all of your LPFSA funds.

LPFSAs are funded at the beginning of the year by your employer. And then you slowly pay back that contribution each paycheck. If you leave before the end of the year, you do not need to worry about paying for the funds you have used. Your employer will cover the cost.

__Situation 2:__ You leave your employer mid-year, and you haven’t used your LPFSA funds. 

The only way to continue contributing to your LPFSA and using your funds is to enroll in [COBRA coverage](https://livelyme.com/what-happens-healthcare-unemployed). If you won’t be enrolling in COBRA coverage, then you will lose the unspent funds in your LPFSA. If your job departure is planned, you'll want to use your funds on qualified expenses __before you leave__. 

![limited-purpose-fsa-contribution-limit](//images.ctfassets.net/6j8y907dne6i/4Z9LsoVMRKPCrNZvTypgal/dad098294d61fdef59e39cd7a5b77c1e/limited-purpose-fsa-contribution-limit.jpg)

## The Bottom Line

Limited Purpose FSAs are a great way to use pre-tax money to pay for out-of-pocket dental and vision expenses. 

Possible Pitfalls:
- Only available to spend on certain qualified expenses. 
- Use it or lose it. Some plans allow a certain amount of unused funds to roll over year to year, while others have no rollover at all. For example, in 2020, you’re allowed to roll over $550 over into the 2021 plan year. 

Big Benefits:
- Funded with pre-tax dollars. Save up to 30% on expenses (depending on your tax bracket).
- Use your LPFSA instead of your HSA and continue saving HSA funds for the future.

What Is a Limited Purpose FSA & How It Could Help You Save

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

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

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

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

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

<h2>Who should read this</h2>

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

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

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

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

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

Jump to:

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

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

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

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

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

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

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

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

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

So what exactly is an HSA?

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

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

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

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

Health savings account versus a flexible spending account

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

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

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

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

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

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

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

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

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

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

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

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

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

An HSA offers triple tax savings:

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

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

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

__1. Save more for your health__

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

__2. Health safety net__

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

__3. Put your money to work__

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

__4. The 401(k) of healthcare__

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

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

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

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

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

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

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

__Not sure if you qualify? Use our free calculator__

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

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

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

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

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

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

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

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

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

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

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

Q) Can an HSA be used for glasses?

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

Q) Can an HSA be used for dental?

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

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

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

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

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

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

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

Q) Is an HSA also health insurance?

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

Q) Is an HSA tax-deductible?

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

Q) Are HSA contributions pre-tax?

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

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

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

Q) Does an HSA roll over?

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

<h2>Get a free HSA</h2>

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

HSA Guide 

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

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

2019 HSA Guidebook

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

<p></p>

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

open-enrollment-employee-tips.png

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

Open Enrollment Tips for Employees

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

---

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

## Your HSA is Dependent on Your Health Care Coverage

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

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

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

__These eligibility requirements change in 2021:__

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

## What is a Family HSA?

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

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

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

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

## Annual HSA Contribution Limits

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

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

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

These contribution limits change slightly in 2021:

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

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

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

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

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

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

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

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

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

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

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

### Real-Life Examples:

#### Family HSA Contribution Limit with Two Accounts

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

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

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

#### Family HSA Contribution Limit with One Account

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

## The Benefits of an HSA

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

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

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

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
















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

family-hsa-vs-individual-hsa

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

Family HSA vs Individual: What’s the Difference?

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

## Tips for navigating health insurance when divorcing

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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



stay-on-insurance-divorce

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

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

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

Employee-HSA-Guide.jpg

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

Employee HSA Guide

Lively Blog

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

---

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

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

## How Do I Qualify for an HSA?

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

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

## How Does a Health Savings Account Work?

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

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

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

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

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

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

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

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

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

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

__Additional health savings account details:__

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

## How Much Can I Contribute to My HSA?

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

For __2020__, those limits are:

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

For __2021__, those limits are: 

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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







what-is-hsa

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

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

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

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

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

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

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

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

## What is Considered an HSA-eligible HDHP?

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

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

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

## How Does a High Deductible Health Plan Work?

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

discover "what is a high deductible health plan?"

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

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

What is a High Deductible Health Plan (HDHP)?

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

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

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

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

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

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

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

## What is a Health Savings Account?

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

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

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

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

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

### How Does an HSA Work?

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

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

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

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

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

### How Age Affects HSA Use & Taxes

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

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

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

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

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

### How Does a Healthcare FSA Work?

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

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

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

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

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

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

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

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

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

## Choosing Between an HSA and Healthcare FSA

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

### Eligibilty Requirements

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

### Contribution Sources & Changes

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

### Rollover Rules

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

### Account Ownership

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

### Access to Money

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

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

### HSA: A Savings Asset

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

## Is an HSA or FSA Better for You?

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

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

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

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

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

hsa-vs-fsa

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

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

pexels-photo-259363.jpeg

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

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

HDHP HSA vs PPO: Is HSA or PPO Better?

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

---

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

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

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

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

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

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

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

### Expense Scout

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

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

## Document All Medical Expenses

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

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

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

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

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

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

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

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

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

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

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

You can reimburse yourself __anytime__. 

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

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

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

## Want More Money in Retirement? Reimburse Yourself Later

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

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

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

## How HSA Distributions Are Taxed and Reported

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

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

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

## Reimbursement in Action

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

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

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

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

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

### Real-Life Example: Your Savings Strategy

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

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

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

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

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

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

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

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

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






hsa-reimbursement-rules

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

Leslie Harding

Freelance Content Specialist

Lively Blog

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Leslie Harding

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Lively Blog

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