From the Affordable Care Act, to employer-based and private plans, it is no wonder we get overwhelmed with endless options for health insurance. These days, millions of Americans choose a Health Savings Account (HSA) for so many reasons, but none more important than for the significant tax benefits and medical expense savings it provides.
Because of the potential confusion, I will break down the specific benefits gained from choosing an HSA and provide a review of Lively HSA. After I introduce you to this wonderful savings and investment tool, I will offer a review of Lively HSA. This startup has a strong following for so many reasons, and is a smart choice for anyone looking to opt for an HSA in 2020.
- What is a Health Savings Account?
- How do Health Savings Accounts work?
- What are the rules for a Health Savings Account?
- What are the savings limits for a Health Savings Account?
- Are HSAs tax-free?
- Health Savings Account (HSA) vs. Flexible Spending Account (FSA)
- A review of Lively, which offers a free HSA
What is a Health Savings Account?
A Health Savings Account (HSA) is a medical savings account with significant tax advantages. It is like a regular savings account, but the money can only be used for qualified medical expenses. In order to reap the benefits of an HSA, you must have a high-deductible health plan (HDHP). For 2020, the IRS has announced new plan deductibles: $1400 for an individual, and $2800 for a family. Also, self-employed individuals can use an HSA.
Millions of Americans are taking advantage of HSA plans to save on medical expenses and to invest for their future. This is because an HSA allows pre-tax money to be invested for retirement needs, too. An HSA gives you more flexibility and control over your money, while still covering important medical expenses.
How do Health Savings Accounts work?
The employer or self-employed individual deposits money into the HSA, which you then access to pay for eligible medical costs, typically with a debit card. Once you meet the financial responsibilities for the annual deductible, the insurance kicks in to meet any financial demands as they arise.
Let’s take a look at how the HSA can be used to save you and your family money. An HSA can usually be used to cover eyeglasses, contact lenses, prescription medications, and obviously, all doctor and hospital visits. It covers all qualified medical expenses without risk of penalty or liability. It can also be used for medical needs not covered by insurance. For example, massage therapy not approved by insurance can be paid for by HSA funds with a doctor’s letter stating the treatment is of medical need.
By setting aside money pre-tax for deductibles, copayments and coinsurance, you can greatly reduce your healthcare costs and lessen your federal income tax burden. The HSA comes with the added bonus of remaining portable — you keep your money even if you decide to switch places of employment.
Besides saving on overall medical expenses, you also pay less in federal income tax by using pre-tax funds to your HSA. Those with spouses can cover their qualified medical needs, as well as other qualifying family members, regardless of whether they are covered under your high deductible health plan. Another great thing to point out: The balance rolls over year to year.
What are the rules for a Health Savings Account?
There are rules set by the IRS for who is eligible to own and contribute to an HSA. You must be covered under a qualified HDHP on the first day of any month for which eligibility is claimed. Also, you must not be covered under any health plan that is not a qualified HDHP, be enrolled in Medicare or be claimed as a dependent on another individual’s tax return.
There are also specific rules regarding minimum annual deductibles, contribution limits and out-of-pocket maximums. These are important rules to pay attention to because if you over contribute money to your HSA, you will be taxed on the excess.
What are the savings limits for a Health Savings Account?
In 2020, the minimum annual deductible increased to $1,400 for a single contributor and $2,800 for a family. Contribution limits increased, too. They are $3,550 for a single contributor, and $7,100 for a family. The out-of-pocket maximum also increased in 2020, with a single contributor amount being $6,900 and $13,800 for a family. The new limits increased by $50 for individuals and by $100 for family coverage. The catch-up contribution remains at $1,000. This is for those over 55. They can contribute $1,000 (and lower their tax burden) to “catch-up” as they get closer to retirement age.
Are HSAs tax-free?
HSAs provide a triple tax savings in that contributions are tax-free for you, whether the money comes from an employer, your friends and family’s gifting funds, or your own money. Unlike a 401(k), all of the money contributed through payroll is not subject to Medicare or Social Security taxation, so your investment earnings and account grow tax-free.
Distributions from your HSA after age 65 can be taken without penalty, meaning you can use the funds for qualified or unqualified medical expenses. The only instance where you will run into being taxed is if you take a distribution from your HSA for anything other than medical care.
Health Savings Account (HSA) vs. Flexible Spending Account (FSA)
The HSA and Flexible Spending Account (FSA) offer many of the same benefits, including that both can be contributed to with pre-tax dollars. Both allow you to use pre-tax pay for special purposes, but only the FSA allows you to take withdrawals to pay for childcare expenses.
The downside for many families, where the FSA is concerned, is that it has a “use it or lose it” policy, meaning you do not get the benefit of the funds rolling over to the next plan year like the HSA does.
A review of Lively, which offers a free HSA
Without doubt, Lively’s HSAs offer tremendous value with no-fee short-term or long-term investments through top rated TD Ameritrade. Here is another benefit: There is no initial contribution that needs to be made to open an HSA through Lively. Signing up is easy — a five-minute commitment is all it takes with their modern user-friendly app.
Lively allows you the option to invest 100% of your balance at TD Ameritrade with no fees. From a cost perspective this is an amazing deal — especially because Lively has no monthly fee and requires no account minimum. So, this means you have access to many short-term and long-term investment options. And again, with no fees!
Another huge plus with Lively is that from the initial sign-up to the user-friendly app, it takes the headache out of contributing to or making withdrawals from your account. The handy mobile app offers so many time-saving and easy-to-use features — all from a dashboard on your phone. Things like tracking retail receipts, the ability to add expenses, and automated contributions are easy to do.
Keeping their customer experience in mind, Lively offers a debit card for easy medical expense payments. There is even a helpful tool: A search engine that will confirm whether or not something that you want to purchase is indeed covered as a qualified medical expense.
There is also an HSA store, offering a selection of HSA-compliant items, allowing you to shop from the dashboard on your app. If you want to maximize savings, this feature can inform you on hundreds of items that may have escaped your radar.
Think about how helpful this is when it comes to figuring out what is an actual HSA-compliant product. Did you know everyday needs like contact lens solution, sunscreen lotion, and saline nasal mist are on the list? Even products that you might not have expected, like a digital thermometer, can be purchased using your Lively HSA debit card.
If you currently have an active HSA with funds in it, you can roll over your money to a Lively HSA during your enrollment period, if you decide it is a good option for you. If you do not currently have an HSA, but have an HSA-compatible health insurance plan, you can still open an HSA through Lively.
All in all, Lively proves to be an excellent choice for both families and individuals. The easy sign-up experience and very functional mobile app will make the work of managing your medical expense fund hassle-free.
However, it is the fee-free investment opportunities with the well-respected TD Ameritrade that raise Lively’s HSA heads above their competitors. This is a real game-changer when considering your retirement needs, and it can add up to significant savings when minimal medical expenses are your norm.
Lively’s HSAs are FDIC insured, so you don’t have to worry about losing your savings. And it can’t be stated enough: There are no fees with Lively. See if Lively is right for your HSA needs.