fsa-substantiation

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FSA Eligible Items

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

HSA Account Rules

Sarah Laoyan is a Marketing Associate at Lively. She has written articles ranging from inbound marketing strategy, to pet care, and financial health and wellness. She currently resides in San Francisco with her pets, Miles and Charles. 

Sarah Laoyan

Craig Solomon is a Lifecycle Marketing Manager at Lively with more than 10 years of experience in the HSA industry. When he’s not helping Lively better understand their customers, you can find him listening to music or taking long walks in nature with his family. 

Craig Solomon

have or was offered job-based insurance?

FSA (Flexible Spending Account)

When you substantiate your FSA, this means you’re verifying that your purchase is FSA eligible according to the IRS.

When Do I Need to Substantiate My FSA?

Renée knows that the healthcare industry is complicated. With so many options, choosing the right path can be unnecessarily complex. At Lively, she employs storytelling to make it easier for you to make informed healthcare and financial decisions. When she's not writing, she's flexing her green thumb.

Renee Sazci

Discover the differences between an HSA vs Healthcare FSA & the 11 key variables make one choice better than the other.

[Infographic] Differences Between HSA vs Healthcare FSA

FSAs are generally “use it or lose it.” But if your employer offers an FSA rollover or grace period, you have options.

FSA Rollover vs. Grace Period: Which Is Better?

Flexible Spending Account Rules

Benefits

News

There are several different places where you can purchase FSA-eligible expenses. Learn more about the different types of merchants here.

Where Can I Purchase FSA Eligible Items?

Learn about the Consolidated Appropriations Act of 2021 and how it affects FSA administrators.

What is the Consolidated Appropriations Act of 2021?

Ben is a Freelance Content Specialist who specializes in personal finance and travel. Ben’s work can be seen in publications such as NerdWallet, Experian, Wirecutter, Credit Karma, and Bank Rate. When he’s not writing, you can find him trying new foods, hiking, and spending time with his kids.

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Legislation

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

On December 27, 2020, President Trump passed the [Consolidated Appropriations Act of 2021](https://rules.house.gov/sites/democrats.rules.house.gov/files/BILLS-116HR133SA-RCP-116-68.pdf). This bill combines reauthorizations of several budget line items with $900 billion in COVID-19 related relief. 

The good news? This bill passing allows for additional leniency to rollover or carryover rules as it relates to [Flexible Spending Accounts](https://livelyme.com/guides/flexible-spending-account-fsa) (FSAs). 

Here’s what that means for those employers who offer ANY type FSA:

## Key Takeaways for FSA Account Administrators

- All FSA (Health, Limited Purpose, and Dependent Care) plan years ending in 2020 and 2021 may permit FULL CARRYOVER of unused funds with no penalty
- All FSAs may permit a 12-month grace period with no penalty
- A Health FSA participant terminating participation during a plan year may spend down unused funds for the remainder of the plan year, if the Plan permits, for any plan year ending in 2020 or 2021.
- If a Dependent Care Plan’s Plan Year enrollment was prior to January 31, 2020, and a participant’s qualifying dependent turned 13 during such Plan Year, the participant is eligible to enroll in and use Dependent Care FSA for the subsequent Plan Year to cover such dependent.
- A Plan may permit participants to change elections in the Plan Year ending in 2021 without experience a qualifying life event
- A Plan may make retroactive amendments to accommodate any of these changes of the rules.

__NOTE:__ All of these extensions are OPTIONAL - meaning employers have the choice to provide these benefits to any of their employees who currently fit Plan descriptions.

## Specific FSA Rules in the Consolidated Appropriations Act of 2021

Jump to: 

- [FSA Carryovers and Grace Periods](#fsa-carryovers-grace-periods)
- [Extended Run-Out Period for Claims](#extended-run-out-period)
- [Dependent Care Eligibility Extension](#dependent-care-eligibility-extension)
- [Election Changes Without Qualifying Events](#election-changes-without-qualifying-events)
- [Retroactive Plan Amendments](#retroactive-plan-amendments)

<h3 id="fsa-carryovers-grace-periods">FSA Carryovers and Grace Periods </h3>

A Health (or Limited Purpose) FSA can either have a carryover or a grace period, or no form of extension at all. A Dependent Care FSA may permit a carryover period. These rules have not changed with this new legislation. Reminder that these extensions are OPTIONAL for employers, meaning that you have to choose either a carry over, grace period, or no extension at all to provide these options to your employees. 

What has changed is the maximum amount you can carry over or the duration of the grace period. 

#### FSA Carry Over/Rollover Period for 2021 and 2022

Any unspent funds in the Plan Year ending in 2020 to the Plan Year ending in 2021 __can be carried over in full__. This amends the current rule that no more than $550 can be carried over from one Plan Year to the next. This is also true for Plan Years ending in 2021 over into the Plan Year ending in 2022.

#### FSA Grace Period for 2021 and 2022

An FSA grace period is a fixed period of time after the end of a Plan Year during which expenses may be incurred and reimbursed while still “counting” for the Plan Year that just ended.

The typical FSA grace period is two and one-half months (2.5 months). This new change to the rules for administering an FSA allows for Plans with Plan Years ending in 2020 or 2021 to extend the traditional grace period to __12 full months__. 

__Important Note:__ The law does not specifically say that FSA grace periods can be extended *up to* 12 months, rather it says to 12 months. Double-check with your legal counsel if considering expanding your grace period to any other time besides the traditional 2.5 months or 12 full months.

<h3 id="extended-run-out-period">Extended Run-Out Period for Claims </h3>

Typically, when an individual enrolled in a specific plan ends their participation in a Plan as a result of losing employment or losing eligibility for the Plan for other reasons (such as a reduction in hours below Plan’s definition of “full time”), the individual’s ability to make new reimbursable claims ends after a short administrative period. 

With the Consolidated Appropriations Act of 2021, for individuals who were terminated from employment in the __calendar year__ 2020 or 2021, a Plan may permit such individuals to continue to make claims and be reimbursed for the duration of the Plan Year (including any grace period). 

This means if an employee had an FSA with unspent funds, and then were let go, they would still be eligible to make claims and be reimbursed through their FSA until the end of the applicable Plan Year. Be extremely clear to provide employees with the end date of your specific plans. 

If a Plan adopts this change, this exception will also apply if an employee is terminated at any time during the 2021 plan year. 

<h3 id="dependent-care-eligibility-extension">Dependent Care Eligibility Extension</h3>

This section is the only change that does not appear to require a specific Plan document amendment.

This change applies to employees enrolled in a [Dependent Care FSA](https://livelyme.com/what-is-a-dependent-care-fsa) (DCFSA) that had its regular enrollment period ending on or before January 31, 2020. A participant may have become eligible and enrolled during a later special enrollment period and still qualify for this extension. As long as the DCFSA Plan Year in which the individual is enrolling has concluded their regular enrollment period by January 31, 2020, they are eligible for this extension. 

Typically, a DCFSA requires the dependent to be under the age of 13 for expenses to qualify for reimbursement. The Act has amended the age to be 14, if your Plan Year falls under 2020 or 2021. This rule also applies to any applicable grace period of said Plan Years.

<h3 id="election-changes-without-qualifying-events">Election Changes Without Qualifying Events </h3>

Typically, an eligible individual has a limited number of options for making an election (either enrolling or declining to enroll, increasing or decreasing the amount elected) into an FSA plan. Under normal circumstances, you can enroll during a Plan’s regular enrollment period (open enrollment, usually 1-2 weeks about a month before the Plan year starts), or for a fixed number of days (usually 30) after a special enrollment right is acquired (newly hired, newly eligible, lost other coverage, etc). 

The Act states that a Plan may permit election changes without considering whether a special enrollment period applies. This means that a Plan may allow election changes with no corresponding explanation. This is an extension of [earlier relief](https://www.irs.gov/pub/irs-drop/n-20-29.pdf) for Plans for the 2020 Plan Year.

<h3 id="retroactive-plan-amendments">Retroactive Plan Amendments </h3>

Typically, a plan document allows an employer to set plan policies and explain the specific procedures for implementing and enforcing these policies ahead of time. 

The Act states that a plan document CAN be amended retroactively. However, the date on which those retroactive changes begin and for how long they are applicable can be a little murky under the Act. We highly recommend speaking with legal counsel before making any retroactive changes to your Plan.

## Moving Forward

What does this all mean for individuals and their current FSA plans? There’s currently a lot of information in flux, and we highly recommend reaching out to your FSA plan administrator to get more information about your specific scenario. 


__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.

A [Flexible Spending Account](https://livelyme.com/how-does-an-fsa-work) (FSA) offers employees the chance to save for medical expenses pre-tax. The arrangement can save you hundreds or even thousands of dollars per year. Be warned, you must use your FSA funds by the end of each plan year.

That is, unless your plan has an [FSA rollover](https://livelyme.com/flexible-spending-account-fsa-rollover) or grace period. The Internal Revenue Service (IRS) allows employers to opt-in to one of these options. Both options can help their workers who have an end-of-year balance. 

It's important to understand what happens to your funds at the end of the plan year. You don't want to leave money on the table!

## The Different Types of Flexible Spending Accounts

There are three different types of FSA plans you can get. These plans are only available through employers that offer them. In each case, your contributions occur on a tax-free basis. This means you’ll save tax money when you file your return.

Here's a look at each different type of FSA:

- __Healthcare FSA__: You can use funds for eligible medical expenses, including dental and vision. Eligible people include you, your spouse and any dependents you claim on your tax return. A [healthcare FSA](https://livelyme.com/what-is-a-healthcare-fsa) can offer a rollover or a grace period.
- __Dependent Care FSA__: Participants can use money from this account to pay for dependent care of a child or adult. It's intended for individuals who need dependent care so they can work. [Dependent Care FSAs](https://livelyme.com/what-is-a-dependent-care-fsa) don’t offer a rollover option, but may offer a grace period or run-out period.
- __Limited-Purpose FSA__: This FSA only includes qualifying dental and vision expenses. [Limited-purpose FSAs](https://livelyme.com/what-is-a-limited-purpose-fsa) can come with a rollover or a grace period.

The FSA contribution limit for healthcare FSAs and limited-purpose FSAs is $2,750 in 2021. With a Dependent Care FSA, you can set aside up to $5,000 if you’re married filing jointly or $2,500 per account if each spouse has one.

Healthcare and limited purpose FSAs are not like HSAs -  you do not have to have a qualified high-deductible health plan to use them. 

As such, they’re perfect if your health insurance plan doesn’t qualify for an HSA.

## FSA Rollover vs. Grace Period: How Do They Work?

The default setting for FSAs is the Use It or Lose It rule. This means you give up any FSA funds you don’t spend by the end of the plan year. This is in stark contrast to HSAs. With an HSA you don't have to use your contributions within a certain timeframe.

Beginning in the 2014 plan year, the IRS added a couple of options for employers. These options help limit that loss for workers with funds left over in a healthcare FSA or limited-purpose FSA.

Employers that offer these FSAs can choose to offer a rollover, grace period or nothing at all. The only catch is that they can’t offer more than one option. If your employer doesn’t offer either option, it may choose to offer a run-out period instead.

### FSA Rollover

With an FSA rollover, participants can carry over up to $500 of their unused funds to the following plan year. 

Let's take this real life example: 

You have a $600 balance at the end of the year. Next year, can start the year off with $500 plus that year's contribution limit. While you did have more money in your FSA left over, you're only allowed to take $500 over into the next year.

If you have less than $500 remaining in your account, you can roll over the full FSA balance. What’s more, you can still contribute the maximum amount in the following year.

Due to the coronavirus pandemic, employers may choose to allow workers to roll over up to $550 of 2020 funds to the 2021 plan year.

### Grace Period

With the grace period option, employees can get an extra 2.5 months (March 15) to use the previous year’s FSA funds. As long as the service occurs within that grace period, it qualifies. 

There’s no limit on how much you can use during an FSA grace period. This means it can be more beneficial if you have more than $500 in remaining funds. 

NOTE: The IRS has offered some additional benefits to accommodate for the coronavirus pandemic. Employers can choose to extend the grace period for 2019 FSA funds through the end of 2020 if the plan follows the calendar year. If they follow a split-year schedule, they can extend through June 30, 2021.

### Run-Out Period

A run-out period is a period of time during your new plan year in which you can still file claims for expenses made in the previous year. 

Let's say your run-out period lasts until March 31.  You will have until then to file a claim for FSA funds for any eligible expense made by December 31 of the previous year. This can be helpful because there’s often a delay between your service or procedure and when you get your bill.

![rollover-grace-period](//images.ctfassets.net/6j8y907dne6i/6ksTi5yHtYefgNmUHrL26r/6ae927ea49c648b29d9f401f66d0fb1c/rollover-grace-period.jpg)

## Which Is Better: A Rollover or a Grace Period?

As an employee,  you don't get to choose which FSA extension option you get. Your employer gets to choose — and remember, they may choose not to offer either.

Depending on the situation, you may have some influence in the decision-making process for future FSA plan years. So it’s a good idea to understand both options and their benefits and drawbacks. Discuss options with your employer so future employees can receive these benefits.

### FSA Rollover Pros and Cons

The biggest benefit to an FSA rollover is that you’ll have the entire upcoming plan year to use the funds from the previous year. This setup is helpful if you don’t have any medical services or procedures scheduled at the beginning of the following year.

The downside is that you can only roll over up to a maximum of $500. Of you have more than that in unused funds, you’ll still be leaving some money on the table, even if not the full amount.

### FSA Grace Period Pros and Cons

The grace period option doesn’t limit how much of the previous plan year’s unused funds you can use. As long as you incur the expense within the first 2.5 months of the following plan year, you can get reimbursed.

That said, the amount of time you have to use your FSA funds is much shorter than with the rollover alternative. If you aren’t proactive about using it all at the beginning of the year, you may still lose some of it. 

## Other Tips for Using Your FSA Money

Make it a goal to use your entire FSA balance by the deadline. Here are a few options to consider:

- __Know what qualifies__: The IRS provides a list of [eligible medical expenses](https://www.irs.gov/publications/p502) and [qualified dependent care expenses](https://www.irs.gov/pub/irs-pdf/p503.pdf). Read through the list to find out if you’ve incurred expenses that you didn’t know were eligible. Remember that if you have a limited-purpose FSA, your options are limited in comparison to a healthcare FSA. 
- __Visit the FSA Store__: The [FSA Store](https://fsastore.com/&utm_source=Lively&utm_medium=TPA+Public+Proprietary+EL&utm_campaign=TPA+Partner) only offers qualified products for your healthcare FSA. You can shop by category and search for products you could use to improve or maintain your health. You can also shop for FSA-eligible items on [Amazon.com](https://www.amazon.com/FSA-Store/b?ie=UTF8&node=17904040011).

One thing to avoid is prepaying for medical care that will not happen during the plan year or grace period. An expense isn’t considered incurred unless the actual service occurs during the account’s plan year. If you try to use your FSA funds to pay for care in advance, it may not be eligible for reimbursement.

## The Bottom Line

The FSA rollover and grace period offer relief to account holders at the end of the year. If you have an FSA, your employer gets to choose which one to offer, and it may not give you either option.

Speak with your HR representative to find out what your employer offers. Regardless of which option they chose, it’s important to be mindful of your account balance. It’s also important to have a plan to use all the money before the deadline. You’ll be able to maximize the value your FSA offers without the stress of trying to catch up the following year.

If you do have unused FSA money at the end of the year, consider adjusting your contributions. This way, you may be able to avoid having a surplus of funds in the upcoming year.


Substantiation? Eligible expenses? FSA card declined and unsure why? While FSAs are great for helping you save money, there are rules that may be a little confusing. With the right information, you can navigate through these rules easily. Here are a few tips to help you become an FSA expert.

## What is substantiation and why is it required?

The IRS requires that every dollar spent from an FSA be eligible and verified. This verification process is "substantiation". This means that you need to prove that everything paid from your FSA is an eligible expense. 

Think of it like this: the IRS lets you use tax-free funds to pay for medical expenses. In exchange, they want proof that you are using those funds for the expenses they deem eligible.

Did your FSA provider request substantiation for a transaction? It's because the merchant that you purchased from was unable to substantiate the expense on their own. When this happens, your FSA provider will want documentation to ensure that your expense is eligible. 

## Follow the Rule of 5 for Substantiation

When submitting documents and receipts for substantiation, be sure to follow the Rule of Five. If your documents cover these five elements, approving your payments will be simple.

1. Patient or dependent name
2. Provider or merchant name
3. Date of service
4. Type of service or product
5. Expense amount

## What is Auto-substantiation?

When paying with your debit card, certain merchants have systems setup to identify eligible expenses. This helps providers authorize eligible expenses without any additional documentation. This process is "auto-substantiation". 

When an expense is auto-substantiated, you won't need to share any receipts with your FSA provider. Pay as you would with your FSA debit card and you're all set. 

Auto-substantiation is most commonly seen at large, national retailers and pharmacies. Big stores like Target, Costco, Walgreens, CVS, Amazon and the FSA Store are a few examples of retailers who are currently set up to auto-substantiate your FSA purchases.

## Why are some debit card purchases authorized, but I still need to submit a receipt?

The intent for your debit card is that it works at merchants and providers where most of the services and products are FSA-eligible. However, not all products at these stores are FSA-eligible. For example, you could be picking up some over-the-counter medication at a pharmacy, but grab a snack on the way out. Your medication is FSA-eligible - your snack is not. 

When you pay for items at these stores, the transaction goes through with the assumption that you purchased qualified expenses. 

Algorithms review the purchase to determine if it was an eligible expense. Sometimes, there isn't enough information from the merchant to auto-substantiate your purchase. This is when your provider would alert you that they need more information. There are many [different types of merchants](https://livelyme.com/where-purchase-fsa-eligible-items) where you can use your FSA. Depending on the inventory of FSA eligible items, some of these stores will require additional documentation.

## Why is my FSA debit card declining?

If you try to use your FSA debit card to purchase eligible items and it declines, there are a few reasons why this can happen. 

Your FSA debit card only works at certain providers and merchants. If you're worried about using your card at a merchant, you can [look up](https://www.sig-is.org/card-holders/store-locator) to see if there are any qualified merchants in your area. 

It is possible that your card declines when making a qualified purchase. When this happens, you can still pay for that qualified expense out-of-pocket. You can then submit the claim for reimbursement later and still receive the tax-free benefits of an FSA.

Wondering why your card declined? Here are three common reasons this can happen:

1. You have not activated your card or the FSA provider suspended your card. (Expired, fraud prevention, etc.)
2. Your FSA has no funds remaining for this plan year, or it has insufficient funds.
3. You are attempting to purchase a mix of ineligible and eligible items with your card. Split your order and pay for only the FSA-eligible items with your debit card.

## Get familiar with eligible expenses

Lively makes it easy with our convenient "[What's Eligible](https://livelyme.com/whats-eligible/)" tool. You can easily search by the type of FSA type you have and see what's qualified. 

Interested in learning more about FSAs? Read about [common FSA-eligible items](https://livelyme.com/flexible-spending-account-fsa-eligible-items) or [different types of FSAs](https://livelyme.com/what-is-an-fsa) on the [Lively blog](https://livelyme.com/blog). 


### What you need to know about merchants and substantiation

Your flexible spending account (FSA) is a powerful tool to help you save on healthcare costs. Each dollar you set aside in your FSA is pre-tax, allowing you to save up to 35%¹ when you use your FSA funds for eligible products and services. Because these FSA dollars are pre-tax, this means you don’t pay taxes on those funds. But there are restrictions—set by the [IRS](https://www.irs.gov/forms-pubs/about-publication-969)—on where and how you can spend the money in your FSA. The more you know about these limitations, the easier it is to use your FSA.

## The IRS Requires Substantiation on FSA Purchases

The first thing to know? The IRS requires verification that the items you buy with your FSA are eligible medical expenses

The good news? Some eligible items are automatically substantiated through your FSA provider. This happens at certain merchants who have their inventory control system set up to work with IRS regulations. This means that for you the customer, the qualified purchase is automatically approved. This system is known as an Inventory Information Approval System (IIAS).

For example, if you use your FSA to cover over-the-counter medication for pain relief at a pharmacy, you may not have to substantiate your purchase. See the chart below for more information.

### Different Types of Merchants
Use this handy chart to get familiar with different types of merchants and the substantiation requirements. Keep in mind that this chart covers services eligible for a Medical FSA. 

If you have a Limited Purpose FSA, only dental and vision services qualify. Use Lively’s ["What's Eligible"](https://livelyme.com/whats-eligible) page to see what eligible expenses you can make by FSA plan type.

![iias-merchant-types-edited](//images.ctfassets.net/6j8y907dne6i/4lB5kIkS946c4Zs9XCWOdZ/9bdfa04d78cd70f5a7126b498ccbad1b/iias-merchant-types-edited.svg)

* Not every franchise of these retailers is IIAS-certified. If not, you’ll need to pay out-of-pocket and request reimbursement.

## Understanding the Different Merchant Types

Want to look up a merchant to see their status? Use this [site](https://sig-is.org/card-holders/store-locator) to search for both IIAS-certified and 90% merchants in your area.

### IIAS-Certified Merchants

IIAS-certified merchants have modified their inventory management systems to automatically identify FSA-eligible products. You won't have to substantiate your purchases with your FSA debit card at these merchants.

### 90% Stores

These stores are stores in which 90% of their merchandise is FSA-eligible. When making a purchase with your FSA debit card at these types of stores, you will need to provide substantiation. Uploading a receipt or Explanation of Benefits (EOB) will help to verify that the purchase is FSA-eligible.

### Health Care Providers

Generally speaking, you can use your debit card at your health care provider's office to help pay for your visit. You’ll need to upload an Explanation of Benefits (EOB) and receipt so the expense can be substantiated.

### Non-certified and Local Merchants

When making qualified purchases at non-IIAS certified merchants, you will need to pay out-of-pocket. You can then submit your receipts for reimbursement from your FSA.

## What's an Explanation of Benefits (EOB)?

An Explanation of Benefits (EOB) is a statement from your health, dental, or vision insurance plan. It describes the services received and what costs the plan will cover and the amount you’ll pay. Your provider creates an EOB when they submit a claim for the services you received. An EOB is not a bill but is an ideal document for substantiating FSA claims. 

__NOTE:__ Make sure your provider’s bill matches the EOB before you pay. 

## Follow the Rule of 5 for Substantiation

When submitting documents and receipts for substantiation, be sure to follow the Rule of Five. If your documents cover these five elements, approving your payments will be simple.

1. Patient or dependent name
2. Provider or merchant name
3. Date of service
4. Type of service or product
5. Expense amount

---

Footnote:
¹) Your savings may vary. The 35% example includes 24% federal tax savings, 3.35% state tax savings, and 7.65% payroll tax savings.


You qualify for a Health Savings Account (HSA). And your employer offers a Healthcare Flexible Spending Account (FSA). Which should you choose? To make that decision let’s explore the differences between an HSA vs Healthcare FSA.

## HSA vs Healthcare FSA Infographic

[![HSA vs FSA Infographic Lively HSA (2)](//images.ctfassets.net/6j8y907dne6i/2YvNPjQUIIrRBHzZPml9iQ/1d4de2c8b09559a693935ac125f5a220/HSA_vs_FSA_Infographic_Lively_HSA__2_.jpg)](https://assets.ctfassets.net/6j8y907dne6i/5nXsaiXD4qhIm7xKDbki9q/18e29f9c1f41deec572f874777737c5a/HSA_vs_FSA_infographic_Lively_HSA.pdf)

## HSA vs. Healthcare FSA

### Health Savings Account (HSA)

Think of an HSA like a 401(k) for healthcare. An HSA can pay for healthcare costs today and for years to come. 

- __Eligibility__: Must be enrolled in an HSA-eligible [High Deductible Health Plan](https://livelyme.com/what-is-a-high-deductible-health-plan-hdhp/). 
- __Ownership__: Owned by the account holder.
- __Funded By__: Anyone can fund an HSA (employers included).
- __2021 [Contribution Limit](https://livelyme.com/hsa-guide#maximizing-your-savings)__: Individual: $3,600; Family: $7,200; Age 55+ catch up: $1,000.
- __Contribution Selection__: Change your contribution amount anytime during the year.
- __Tax Advantages__: Triple Tax Advantages: Tax-free contributions, distributions, and growth.
- __Covered Expenses__: IRS-qualified medical, vision, and dental expenses. For the account owner and tax-dependents.
- __Funds Availability__: As funds are deposited.
- __Portability__: HSAs are owned by the account holder. Funds are yours for life and never expire.  
- __Rollover or Grace Period__: HSA funds rollover year-to-year and never expire.
- __[Investment Capability](https://livelyme.com/features/invest-your-lively-hsa)__: Yes - Interest and earnings grow tax-free.

### Flexible Spending Account (Healthcare FSA)

An employer-provided spending account. Yearly pre-tax funds set aside for eligible healthcare expenses.

- __Eligibility__: Available only for employees. Not self-employed individuals. Employer health plan enrollment is not required.
- __Ownership__: Owned by the employer.
- __Funded By__: Employer and/or employee-funded.
- __2021 Contribution Limit__: $2,750.
- __Contribution Selection__: Set annually. Can only change after a [Qualifying Life Event](https://livelyme.com/life-events-that-can-change-your-healthcare-costs).
- __Tax Advantages__: Contributions and withdrawals for qualified medical expenses are tax-free.
- __Covered Expenses__: IRS-qualified medical, vision, and dental expenses. For the account owner and tax-dependents.
- __Funds Availability__: On the first day of the plan year.
- __Portability__: Forfeited if you change or lose your job. The employer keeps the remaining balance.
- __Rollover or Grace Period__: If allowed by the employer. [Rollover](https://livelyme.com/flexible-spending-account-rules) of $550 to next year or 2.5 months grace period to spend. 
- __Investment Capability__: No investment option.

__[Download our infographic](https://assets.ctfassets.net/6j8y907dne6i/5nXsaiXD4qhIm7xKDbki9q/18e29f9c1f41deec572f874777737c5a/HSA_vs_FSA_infographic_Lively_HSA.pdf) and keep it handy when comparing options during open enrollment.__

[![hsa vs fsa infographic](//images.ctfassets.net/6j8y907dne6i/2TCFhUV26SgDo5Hm6IsXv8/a254954cf909a30226200bcf5477ead0/hsa_vs_fsa_infographic.jpg)](https://assets.ctfassets.net/6j8y907dne6i/5nXsaiXD4qhIm7xKDbki9q/18e29f9c1f41deec572f874777737c5a/HSA_vs_FSA_infographic_Lively_HSA.pdf)

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.