Lively HSA Review: Pros, Cons & Why It’s The Best

Save money for retirement with an HSA
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This Lively HSA review is broken down into two parts:

  1. HSAs 101. As there’s a lot of confusion about HSAs, Part 1 covers the most important things to know about HSAs.
  2. Lively HSA Review. Part 2 reviews Lively. You’ll learn what Lively has to offer, how it works, and whether Lively is the best HSA provider for you.

Lively's 100% fee-free HSA, array of low-cost investment options, and top-notch tech make it a top pick among HSA providers.

Lively Pros:
  • A fee-free health savings account.
  • Great (commission-free) short-term and long-term investment options through TD Ameritrade.
  • Easy sign-up and very user friendly app. Features include automated contributions, ability to add expenses, store receipts, and more.
Lively Cons:
  • For those wanting to invest, two separate accounts (one with Lively and one with TD Ameritrade) must be maintained.

HSAs 101

An HSA is a way to save money for out-of-pocket medical expenses when you have health insurance with a high deductible. The account can be used to pay for things like your deductible, copays and coinsurance, and has the added advantage of reducing your taxable income.

More and more people are seeing an HSA as not only a source of funds to pay for medical expenses, but also as a way to save money for retirement (more on the mechanics of that below).

Eligibility for an HSA

The IRS determines who is eligible to open an HSA. These are the requirements:

  • You must be at least 18 years old.
  • You must be covered under a qualifying high-deductible health insurance plan (HDHP) on the first day of a given month. For 2019, an HDHP is defined as a plan with a deductible of at least $1,350 for an individual and $2,700 for a family.
  • You cannot be covered under any health plan that does not qualify as an HDHP (with limited exemptions). In other words, if you have a secondary insurance policy with a low deductible, you may not be eligible.
  • You must not be enrolled in Medicare.
  • You cannot be claimed as a dependent on another person’s tax return.

How an HSA Works

Every year, you decide how much money to contribute to your HSA account (up to the limits). For 2019, the HSA contribution limits are $3,500 for an individual and $7,000 for a family. If you’re over the age of 55, you can contribute an extra $1,000.

The money in your HSA can be used to pay for qualified medical expenses. Any money remaining in your account at the end of the year is rolled over for the following year.

These rollovers do not count towards your annual contribution limit, and therein lies the real value of the tool — if you don’t spend all of the funds in your HSA, you can keep stacking them on top of each other year after year.

Better yet, you can invest these funds, similar to how you’d invest via an IRA or 401(k). Your HSA can then not only serve as a way to save money on medical costs, but also as an additional tax advantage account.

Once you turn 65 and enroll in Medicare, you’re no longer eligible to contribute to the HSA — but you can still use the money to pay for qualified expenses.

Note that you can withdraw funds from your HSA for any reason at any time. However, if you use those funds for non-qualified medical expenses, it will be treated as taxable income and be subject to a 20% penalty.

Once you turn 65, that 20% penalty no longer applies. 

HSA Tax Advantages

Utilizing a health savings account has three valuable tax advantages:

  1. Your contributions are tax-deductible. In other words, they lower your taxable income. That’ll leave you with a lower tax bill (or a bigger refund) at the end of the year.
  2. You can invest your HSA funds, and your gains are tax free. That’s right — if you choose an HSA provider who offers investment options, you can earn interest, dividends and capital gains, and those funds are not considered taxable income.
  3. Your withdrawals are tax-free when used for qualified medical expenses.

You’ll be hard-pressed to find other personal finance products that offer such a compelling tax-advantage trifecta.

Investing via an HSA

The money in an HSA can be invested in index funds, mutual funds, individual stocks, bonds, and other investment vehicles, making it a tax-advantaged retirement account similar to a 401(k) or IRA. However, unlike some other retirement account types, HSAs do not have a minimum required distribution age.

Invest in your health with Lively HSA

Lively HSA Review

As you can tell, I’m a big proponent in HSAs. From reducing your tax bill to using an HSA as a tax-advantaged retirement account, they offer a host of advantages. To maximize these benefits, it’s important to choose a quality, low-cost HSA provider.

How does Lively stack up?

Let’s find out.

Lively Overview

Lively is a fee-free HSA administrator. Most HSA administrators are banks, but Lively is a software company, which gives it some distinct advantages over its competitors that will become clear throughout this Lively HSA review (hint: no fees and solid tech).

Lively doesn’t charge a monthly maintenance fee, an account opening fee, or an account closing fee. And there’s no minimum balance necessary to open an account.

However, in order to set up a Lively HSA account, you must currently have an HSA with funds in it, or you must enroll in an HSA-compatible HDHP that allows contributions to an HSA.

If you already have an HSA, you can roll it over to a Lively HSA during the open enrollment period. The money you contribute can either be held in cash in an FDIC insured account (earning a low-interest rate) or invested via your self-directed TD Ameritrade account.

A screenshot of the main page in the Lively HSA dashboard

How It Works: Using Your Lively HSA for Medical Expenses

After joining Lively, you’ll get a debit card that will give you access to the money in your HSA when you need to pay for qualified medical expenses.

Note that the term “qualified medical expenses” can be tricky; it’s pretty easy to understand that things like copays and prescriptions fall under the term, but what about health-related things you might buy from a pharmacy? Are those considered qualified medical expenses?

Lively has a useful tool that will help you answer this question. When you need to make a purchase, you can quickly access a search engine that will tell you whether or not a given item can be purchased with your HSA debit card.

Members can also access HSA Store (an online shop offering a curated selection of HSA-compliant items) right from their Lively dashboard. You might be surprised to find that items like sunscreen, saline nasal mist, digital thermometers, and lots more qualify.

Screenshot of the default Lively HSA investment dashboard

Lively HSA Investment Options

Paying for your sunblock with tax-free money is great, but if you really want to put your HSA dollars to work for you, you need to invest them. Lively HSA makes that process easy, enabling members to invest their HSA contributions using the well-known TD Ameritrade investing platform. And while many other HSAs require a minimum amount of money to be contributed before you can start investing (sometimes as much as $2,000), Lively does not.

One of the things all investing books for beginners will tell you is that you should make it a priority to avoid or minimize investment fees whenever possible, especially if you’re a beginner who is investing with little money. Lively has plenty of investment options (such as index funds) — many of which are very low-cost.

TD Ameritrade charges $6.95 per stock trade. That not an outrageous amount, but you can also use the money in your Lively HSA to invest in more than 300 commission-free ETFs (exchange-traded funds) and more than 13,000 mutual funds (of which 2,000+ don’t charge a transaction fee).

ETFs and mutual funds are great ways for beginning investors to get started, because neither requires a lot of financial savvy. Even for more experienced investors, they provide a good way to diversify investments while keeping fees low.

Signing up for (and Using) a Lively HSA

Signing up for Lively is easy, and only takes about five minutes via their app.

The app allows you to see your balance, review your recent transactions, automate your contributions, and view and monitor your investments. If you’re standing in the pharmacy and not sure whether a particular product is HSA-eligible, you can find out on the spot by using the in-app search engine.

You can also use the app to upload and store receipts for your health care purchases (which you need to keep for tax purposes), rather than trying to hang onto a bunch of paper receipts indefinitely.

Save receipts via the Lively HSA App

Many banks are still using outdated technology, and it often shows when you’re using one of their HSAs. Conversely, Lively has created a cutting edge, modern HSA platform that users will love.

Is Lively Right for You?

Many people are concerned about outliving their money — and for good reason. While it makes sense to think about the relative benefits of a Roth and traditional IRA, and to look for ways to improve your 410(k), you should consider whether using an HSA as another tool for tax-advantaged retirement investing makes sense in your particular situation.

Keep in mind that if you’ve maxed out your other retirement accounts, an HSA gives you an extra $3,500 to $8,000 to invest each year in a tax-advantaged account.

That’s why I’m a big proponent of HSAs in general. Medical costs are so expensive that it only makes sense to take advantage of anything that will help reduce those costs and provide a tax benefit. And it also makes sense to leverage every tax-advantaged investment account you can.

I’m a big fan of Lively HSA in particular, whether you want to invest your HSA money or not. If the idea of investing all of your dedicated healthcare funds is a little too risky for you, you can always opt to invest a portion of the money and keep the rest in cash inside your Lively HSA.

Many other HSA administrators charge fees. Usually, those fees are assessed either monthly or yearly. Lively doesn’t. Add to that their partnership with TD Ameritrade and a terrific mobile app that facilitates ease of use, and Lively HSA is a winner for anyone who wants to get the most out of their HSA plan.

Learn more about Lively.

R.J. Weiss
R.J. Weiss is the founder and editor of The Ways To Wealth, a Certified Financial Planner™, husband and father of three. He's spent the last 10+ years writing about personal finance and has been featured in Forbes, Bloomberg, MSN Money, and other publications.

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