Can You Sign Up for an HSA on Your Own?
- Lauren Hargrave
- 7 min read
The short answer is: Yes! Unlike FSAs, which require an employer’s sponsorship, Health Savings Accounts (HSAs) are available to everyone, regardless of employment status. To contribute to an HSA, you must be actively enrolled in a High Deductible Health Plan (HDHP) and it must be your only health insurance coverage. That means no supplemental coverage from a spouse’s health plan, Medicare, Medicaid or TRICARE.
You can purchase either an individual plan for just you or you can sign up for a family HDHP that covers you, your spouse and your dependents. The health plan for which you sign up will dictate how much you’re allowed to contribute to your HSA each year, but even if you sign up for an individual HDHP, you can still use your HSA contributions to pay for any out-of-pocket qualified medical expenses for your spouse or dependents.
If you lose your HDHP coverage for any reason, you still have access to your HSA savings and can continue to use them for qualified medical expenses. You just won’t be able to contribute to your account again until you buy another HDHP.
Check if you have a High Deductible Health Plan (HDHP)
To open an HSA, you must either sign up for an HDHP through your employer or in the private market. If it’s presently outside of the open enrollment period and you’re covered by a health plan through your employer, you’ll want to check if your current plan is a qualifying HDHP. To do so, ask your HR Department. Or, review your plan documents to see if your deductible is high enough, and your out-of-pocket max is low enough to qualify as an HSA-compatible plan.
An HDHP isn’t an actual type of health insurance. It’s a designation given to a health insurance plan that has a minimum deductible and out-of-pocket max that meet the IRS guidelines for the current year. As long as your health plan meets these criteria, it can be a PPO, HMO or other type of plan and still be considered an HDHP.
If your health plan doesn’t qualify as an HDHP, you will likely have to wait for the next open enrollment period to switch plans unless you’ve experienced a “qualifying life event” like marriage, birth of a child or loss of a job.
If you’re presently in an open enrollment period, your employer should have provided you with a menu of benefits options in which you can enroll. Under health insurance, the HDHP should be clearly marked. If you don’t see an HDHP as an option, ask your HR Department if there is one available. If your employer has decided against offering an HDHP, you can opt out of buying employer-sponsored health insurance and purchase a private plan on Healthcare.gov.
Selecting the best HSA provider for you
There are many financial institutions that offer HSAs and they all function a little differently. To choose the best HSA provider for you, you have to decide the features and functionality that are important to you as well as what you’re willing to pay for and how much you’re willing to pay for it.
Popular features include:
Ability to invest your contributions
HSAs come in two forms: accounts strictly for savings, and accounts that allow you to invest all or part of your contributions. Even if you consider yourself a novice investor, you can benefit from putting at least a portion of your HSA savings into the market. This chart from NYU catalogs the annual returns of several investments from 1928 to 2021. In it, you can see that returns vary from year to year but they are almost always more than the average interest (0.13%) your money can earn in a savings account.
Low or no fees
Nothing eats into your savings faster than high fees. So before you choose an HSA provider, make sure to read the fine print and write down all of the fees they’ll charge. Common fees include: opening fees, maintenance fees, fund transfer fees, low balance fees, debit card fees, investment fees, etc. Choose an HSA with the lowest fees.
No cash minimum for investing
If you have an investment HSA, you will actually have two accounts. Your cash account, into which your contributions are deposited and from where you withdraw money to pay for qualified medical expenses, and your investment account from where you purchase investments. You fund your investment account by transferring money to it, from your cash account. Many HSA providers require account holders to have a minimum balance in their cash accounts at all times, which can limit their ability to invest and grow their savings. Some HSA providers, like Lively, don’t require any cash minimums so you’re free to invest as money and grow your savings as fast as you’d like.
A wide range of investment options
If you’re an avid investor or if you’re interested in learning more about investing, you might want to open a Self-Directed HSA. These accounts allow you to handpick the investments you want to purchase so you can tailor your portfolio to your specifications. If you’re not confident in choosing your investments, or if it simply doesn’t interest you, you can open a Guided Portfolio HSA that is chosen for you based on your answers to a short survey.
Debit cards linked to your HSA make it easy to use your contributions at the point-of-sale so there are no receipts to keep track of and submit for reimbursement. This is still an option should you lose your debit card or not have it available when you have to pay for a qualified medical expense, but it’s not a requirement.
Mobile app for easy account management
If your HSA provider offers a mobile app, you can manage your account wherever you are. Lively’s even keeps track of your deductible so you always know where you are in terms of your health plan and financial responsibility.
Taking advantage of tax-free deductions
One of the biggest draws to putting your money into an HSA is the account’s triple tax advantage. Your contributions are tax-free in the year they’re made, they grow tax-free and as long as you use them to pay for qualified medical expenses, your distributions are tax-free as well.
If your employer doesn’t offer an HSA, then your contributions won’t be taken directly from your paycheck prior to income taxes being assessed. But, you can declare these contributions when you file your income taxes to reduce your taxable income.
HSA as a savings tool
One of the most attractive features of an HSA is the ability to save for the long term and even use it as a retirement savings tool. Since your contributions roll over from year to year, if you only spend what would otherwise go on a credit card and leave the rest in your account to grow, you can build a nice nest egg over time. If you invest your contributions in the market, you can grow your savings even faster.
Once you turn 65, your HSA functions like any other retirement account in that you can use your savings on anything you would like and most distributions will be subject to the appropriate income tax rate. However, unlike your other retirement accounts, any HSA money you use for qualified medical expenses in retirement remains tax-free. Since the average 65-year old couple retiring in this year will pay over $315,000 in medical expenses through their golden years, it’d be nice to have tax-free money saved to pay for them.
How you can use HSA money
Prior to turning 65, you can use your HSA money to pay for qualified medical expenses for you and your spouse and dependents. These are out-of-pocket costs like deductibles, copays, patient coinsurance responsibilities, prescriptions and medical supplies like crutches, hearing aids and bandages.
Other qualified medical expenses include:
- AA meetings
- Birth control pills
- Breast pump and supplies
- Fertility treatments
- Long-term care and insurance premiums (this is not covered by Medicare)
- Psychiatric care
- Special education
Lively put together a complete list of HSA qualified medical expenses that’s easy to search.
Getting started with Lively
If you want an HSA that makes it easy to save, spend and invest your savings, get started with Lively today. We take rollovers from other HSAs and IRAs and have no minimum deposit requirements. Our dashboard makes account management easy and, dare we say, fun, we charge minimal fees and we have an entire library of resources to help you save successfully. We look forward to speaking with you.
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.