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Using Your HSA as an Emergency Fund

Lauren Hargrave · March 23, 2022 · 4 min read

Using your HSA as an emergency savings account

The state of personal savings in America is dangerously low. In fact, 56% of the population couldn’t cover the cost of a $1,000 emergency. When you consider the fact that 17% of adults have had a major unexpected medical emergency in the past 12 months, the average cost of which was between $1,000 and $1,999 (depending on where they lived and the nature of the emergency), you can see something needs to change. And contributing to a Health Savings Account (HSA) can help.

Save money, pre-tax, for future medical emergencies

An HSA is a savings account into which you contribute pre-tax money to pay for out-of-pocket medical expenses. Since you don’t pay income taxes on your deposits, you can save over 30% on those expenses, depending on your tax bracket.

If you have a Lively HSA, you can also invest your contributions in the market which has an average annual rate of return of 10%. You won’t pay income taxes on the gains your invested savings make and you’ll be able to grow your balance much faster than you would if it was in a simple savings account, earning interest (the average interest rate for a savings account is 0.06%).

You can use these savings to pay for things like copays and regular prescriptions, or you can use your account as an emergency healthcare savings fund to pay for those big medical emergencies that we all suffer at some point in our lives. You can use your HSA to pay for expenses for you, your spouse, your children and any other dependents you might have.

Contribute to your HSA to cover unexpected expenses

Many people find starting an emergency fund difficult because they think they need to be able to set aside a big chunk of money all at once. But with a Lively HSA, there’s no minimum to open your account and there’s no minimum balance required in order to invest your contributions, so you can begin growing your emergency medical fund immediately. There’s also a triple tax-advantage to doing so: your contributions are tax-free, they grow tax-free, and if you use them for qualified medical expenses, those distributions are tax-free as well.

With an HSA, you can deposit your money in whatever cadence works best for you. So if you get a year-end bonus or tax return, you can use it to fund your entire annual contribution at one time, or you can make smaller, regular deposits.

The amount you can contribute each year depends on the type of high deductible health plan you have: individual or family. The IRS sets HSA contribution limits each year for individuals and families. If you have to change your health insurance and no longer have access to an HDHP, you still have access to your HSA money you previously contributed. You just can’t deposit any more until you have an HDHP again.

Which brings us to one of the best features of an HSA: you never lose your savings. They roll over from year-to-year so no matter how much you can afford to set aside each month and year, you can build a health safety net that stays with you through all of life's challenges.

Reimburse yourself for medical emergencies

If you suffer a medical emergency there are two ways to use your HSA. If your HSA administrator gives you a debit card linked to your account, you can use it to pay for your out-of-pocket costs directly. If you don’t have access to a debit card, you will have to pay for the expenses first, then submit the proper documentation to your HSA administrator for reimbursement.

If you don’t have enough in your HSA to cover the total amount of your bill, there’s still a way to pay for it using pretax money. Use your current HSA balance to cover whatever you can, then later, after you’ve made more deposits to your account, reimburse yourself for the remainder of the bill. The only thing you can’t do is reimburse yourself for expenses you incurred prior to opening your HSA.

Start saving for retirement

Since your contributions never expire, an HSA makes a great addition to any retirement savings plan. It even has the added benefit of turning into a regular retirement account once you turn 65, meaning you can use your HSA money on whatever you want. You’ll pay the appropriate income taxes on the money you use for regular, everyday expenses, and any distributions you take for qualified medical expenses remain tax-free.

Open your HSA with Lively and start saving today

With no minimum deposit or balance requirement, and the ability to invest your contributions immediately, Lively is the perfect vehicle to grow your emergency savings. Learn more about opening an HSA with us.

Lauren Hargrave

Lauren Hargrave

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

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On May 16, 2023 the Internal Revenue Service announced the HSA contribution limits for 2024. For 2024 HSA-eligible account holders are allowed to contribute: $4,150 for individual coverage and $8,300 for family coverage. If you are 55 years or older, you’re still eligible to contribute an extra $1,000 catch-up contribution.

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What is the Difference Between a Flexible Spending Account and a Health Savings Account?

Lauren Hargrave · February 9, 2024 · 12 min read

A Health Savings Account (HSA) and Healthcare Flexible Spending Account (FSA) provide up to 30% savings on out-of-pocket healthcare expenses. That’s good news. Except you can’t contribute to an HSA and Healthcare FSA at the same time. So what if your employer offers both benefits? How do you choose which account type is best for you? Let’s explore the advantages of each to help you decide which wins in HSA vs FSA.

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Ways Health Savings Account Matching Benefits Employers

Lauren Hargrave · October 13, 2023 · 7 min read

Employers need employees to adopt and engage with their benefits and one way to encourage employees to adopt and contribute to (i.e. engage with) an HSA, is for employers to match employees’ contributions.

Disclaimer: the content presented in this article are for informational purposes only, and is not, and must not be considered tax, investment, legal, accounting or financial planning advice, nor a recommendation as to a specific course of action. Investors should consult all available information, including fund prospectuses, and consult with appropriate tax, investment, accounting, legal, and accounting professionals, as appropriate, before making any investment or utilizing any financial planning strategy.



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