This article is a paid partnership with Lively. All opinions are our own, but we highly recommend Lively as an HSA provider.
Health Savings Accounts, or HSAs, are becoming a popular choice for both employers and employees. With open enrollment season upon us, let’s talk a little about how the HSA works, and how you actually have a big choice when it comes to who manages your HSA.
The concept of an HSA might be scary at first - especially if you’re used to an HMO or PPO plan. But it’s important to remember that the HSA isn’t insurance - it’s an additional feature to your normal health insurance that some plans offer.
If you have the ability to select an HSA health care plan - whether through your employer or through the open market, we think it’s the best option.
Here’s what you need to know about HSAs, and how you can change providers from your workplace plan if you need better options. That way, you can switch to Lively (which is one of the best HSA providers) even if you’re employed.
What's An HSA?
An HSA is a health savings account. This account can be used to save money or invest money to be used for health care or other expenses. You can contribute up to the 2021 annual HSA contribution limits of $3,600 for individuals or $7,200 for families.
It’s available to individuals who opt for a qualifying high deductible health insurance plan. This plan can be offered by an employer or it can be purchased on a marketplace.
The rules for a qualifying health care plan are:
- In 2021, your health insurance must have an annual minimum deductible of $1,400 for individuals and $2,800 for families.
- In 2021, the annual out-of-pocket maximum can’t be more than $6,900 for individuals and $13,800 for families. This definition only applies to the in-network services.
- The health insurance plan must be so that the individual/family pays the first cost of healthcare up to the deductible before any kind of insurance kicks in (preventative care excluded from this definition). This includes prescription drugs as well. The deductible and maximum out-of-pocket expenses are indexed annually for inflation.
- Family coverage is determined by having an insurance policy that covers you and at least one other person.
You can find the full HSA health plan requirements here.
So, it’s important to note that the HSA is an account, and you still have health insurance. A lot of people forget this and somehow think an HSA is more expensive.
But the benefits of an HSA are amazing, and it makes it totally worth it if you’re eligible.
Is An HSA Worth It?
HSAs are awesome saving and investing vehicles because they receive a triple tax advantage (but actually there are five major advantages).
Here’s what you get with an HSA:
- Contributions are pre-tax, so it lowers your taxable income
- Growth is tax free within the account (just like an IRA)
- Withdrawals are tax free for qualifying medical expenses
- You can use your HSA for Medicare premiums tax-free
- You can withdraw your money in retirement penalty free, just like a traditional IRA
That’s why we like to call the HSA the Secret IRA - it’s like an IRA, but better!
The big factor that makes an HSA worth it is the fact that you can invest within the HSA. But this is also the biggest detriment many HSA plans face. Too many don’t allow you to invest, or if they do, they charge fees or have high minimums.
But don’t fret - unlike a 401k, you can change your HSA provider anytime! If you’re not self-employed, you can still move your HSA to a better provider if you choose.
How To Change Your HSA From Your Workplace Provider (Even If You’re Not Self Employed)
If you’re not satisfied with your workplace HSA provider, or are opening an HSA for a plan you bought on the marketplace, it’s essential that you choose a great HSA provider.
Reminder: You can change your HSA provider even while still working at your company! Unlike a 401k, you can change your HSA provider anytime!
What makes a great HSA provider?
- No fees to maintain an account
- Low fees to invest
- Ability to invest in low cost mutual funds
- Easy access to your funds
This is why we like Lively. They offer a truly free health savings account - no hidden fees. They offer up to 3 free debit cards to access your funds easily (who needs more than three anyway), and they offer the ability to invest.
Investing is also free at Lively, and you can invest 100% of your HSA (unlike other providers and most corporate HSA accounts), and you invest at TD Ameritrade. They offer some of the best low cost index funds on the market.
You won't find a better deal than free!
But what if you have an employer HSA? It’s still possible to transfer your funds over to Lively - even while you’re still employed. You just need to do a trustee-to-trustee transfer and move the funds over (which is free at Lively).
You can do this as often as you like, but most people will do it a few times per year. This enables you to have a win-win situation.
If you're ready for a great HSA, check out Lively here.
Our Thoughts On How To Best Use Your HSA
Now that you have your HSA at Lively (or are in the process of moving it over), it’s essential that you use your HSA for your maximum benefit.
First, if you get any type of employer match to your HSA, take advantage. Many employers offer wellness matches to an HSA, similar to 401k matches. Except these matches typically depend on you doing some type of wellness activity, like an online survey or getting your physical.
Second, invest your HSA! This is where the HSA power really lies. Investing your money for the long term will enable you to grow this nest egg tax free.
Finally, don’t touch it! It might be tempting to reimburse yourself for every expense. But if you can afford to pay out of pocket, simply save your receipts and let your money grow. You can reimburse yourself any time, or treat the HSA like an IRA in retirement.
Keep accurate records, but try to let the money grow tax free.
The HSA is our favorite savings and investing account, and sadly not enough people take advantage of it.
However, with tools like Lively, it’s easier than ever to take control of your HSA and invest it for your future. Even if you have an HSA with your employer, you still can take advantage of Lively to invest.
Robert Farrington is America’s Millennial Money Expert® and America’s Student Loan Debt Expert™, and the founder of The College Investor, a personal finance site dedicated to helping millennials escape student loan debt to start investing and building wealth for the future. You can learn more about him on the About Page, or on his personal site RobertFarrington.com.
He regularly writes about investing, student loan debt, and general personal finance topics geared towards anyone wanting to earn more, get out of debt, and start building wealth for the future.
He has been quoted in major publications including the New York Times, Washington Post, Fox, ABC, NBC, and more. He is also a regular contributor to Forbes.