Can I Have An HRA And HSA At the Same Time?

Navigating health benefits can be pretty confusing, especially when it comes to less common benefits. Health Reimbursement Arrangements (HRAs) and Health Savings Accounts (HSAs) are two atypical but highly valuable benefits. Both offer unique advantages, but it’s necessary to understand how they work in order to maximize your benefits.

If you’ve ever asked yourself “Can I have an HRA and HSA?” then this blog is for you. We'll break down the key differences between HRAs and HSAs, explore the guidelines for using both, and outline practical strategies for making the most of both types of accounts.

What is an HSA?

First, let’s break down what a Health Savings Account (HSA) is. An HSA serves as a tax-advantaged savings account that’s designed to help individuals save money on medical expenses. In order to be eligible for an HSA, you have to be enrolled in a high-deductible health plan (HDHP).

Contributions to an HSA can be made by you, your employer, or both. And what’s great is that these contributions are tax-deductible. This feature makes HSAs an attractive benefit for those looking to decrease taxable income while saving for future healthcare costs.

Key Features of HSAs

At a quick glance, here are some of the most important features of an HSA:

• Tax advantages: The contributions made by you and your employer are tax-deductible.  Your earnings grow tax-free as well, and withdrawals for qualified medical expenses are also tax-free.

• Portability: The funds in your HSA are yours, regardless if you change jobs or enter retirement. This portability helps ensure your savings can continue to grow and be used for healthcare expenses regardless of employment status.

• Investment options: Many HSA providers offer investment options, which allow your savings to grow over time. By investing some of your HSA funds, you have the ability to potentially increase your savings significantly.

What is an HRA?

Now, let’s pivot to Health Reimbursement Arrangements (HRAs). An HRA is an account that reimburses employees for qualified medical expenses and is completely funded by the employer only. HRAs aren’t tied to high-deductible health plans like HSAs, making them a more flexible option for employers to offer healthcare benefits.

Key Features of HRAs

A few of the more important features of an HRA include:

• Employer-funded: Employers are the only ones who can contribute to an HRA. This can be extremely beneficial for employees without the means to save for future expenses.

• Reimbursement-based: To use an HRA, you need to incur medical expenses first. You’ll then request reimbursement from your HRA. It can be tough to manage medical expenses and timely submission of reimbursement requests. Take the time upfront and set yourself up for success to ensure you can fully utilize your benefits.

• Non-portable: When leaving a job, you typically lose access to your HRA funds. This encourages you to use the funds for immediate or short-term healthcare needs while you are employed.

HSA vs HRA: Key Differences

When you compare HSAs vs HRAs, their differences stand out fairly well. Who can contribute to the accounts differs greatly, as does the ability to keep the funds post-employment. Eligibility requirements and tax benefits are different between HSAs and HRAs, too. Make sure you’re clear on the differences — you want to make the most informed decision about which accounts best suit your needs. 

Can You Have Both an HSA and HRA?

You can have both an HSA and HRA, but there are specific rules required by the Internal Revenue Service (IRS) about using both at the same time. Become familiar with and follow these rules so you stay compliant.

Limited-purpose HRAs

One way to be eligible for both an HSA and HRA is through a limited-purpose HRA. With this type of HRA, you can only use it for certain expenses — think dental and vision care. This keeps it compliant with HSA rules.

Because a limited-purpose HRA doesn't cover general medical expenses, you can still maintain HSA eligibility. If you’re expecting significant dental or vision expenses and want to save your HSA funds for other medical expenses, a limited-purpose HRA could be a great option.

Post-deductible HRAs

Another way to use both accounts is through a post-deductible HRA. This only reimburses your expenses after you’ve met your HDHP plan deductible. With this setup, your HSA remains compliant with IRS regulations. You can effectively manage higher out-of-pocket costs that arise after you’ve met your deductible while still preserving your HSA for other needs.

HSA Withdrawal Rules

If you’re someone who’s got both accounts, make sure you understand the HSA withdrawal rules. Withdrawals from your HSA have to be for qualified medical expenses in order to be designated as tax-free. Using your HSA funds for non-qualified expenses could lead to taxes and a 20% penalty if you’re under the age of 65.

Maximize the Benefits of Your HRA and HSA

If you have both an HSA and HRA, you can leverage both accounts to significantly impact your financial health. Consider these tips for maximizing the benefits of both accounts.

Prioritize HSA Contributions

With all of the tax advantages of an HSA, it’s smart to prioritize maxing out your HSA contributions. Doing this first helps ensure you take full advantage of the tax benefits, plus the potential for long-term savings growth.

Use Your HRA for Immediate Expenses

Because HRA funds fall under the "use it or lose it" rule, try to use them for immediate medical expenses that fall within your HRA's coverage. With this strategy, your HSA funds remain invested and can continue growing over time.

Keep Records

While it’s generally good practice, maintaining detailed records of your medical expenses and reimbursements can help. Keeping a good record is crucial for maintaining compliance with IRS rules. Making sure your records are up-to-date also simplifies tracking your healthcare costs.

Stay Informed

Healthcare laws and regulations often change, so it’s key that you stay informed about any changes to HSA and HRA rules. Be proactive and regularly review the IRS guidelines — consult with a financial advisor if it’d be helpful.

When managed correctly, having both an HSA and HRA can create a comprehensive resource for covering medical expenses. Understanding the regulations and strategically using each account allows you to maximize the tax advantages and the long-term savings potential.

How Justworks Can Help

Are you an employer who’s ready to offer your employees an HSA? When you join Justworks, we make it easy to enroll in an HSA. With it, you’ll get access to high-quality benefits normally reserved for big companies. Imagine offering your employees the benefits they want the most (plus a few they didn’t even know they wanted). 

We also have a streamlined, user-friendly platform that provides entrepreneurial support for payroll, compliance, benefits admin, and HR. And that’s not all — we offer 24/7 customer support from real humans. If you’re ready to invest in your business and your employees, get started with Justworks today.