Promote Employee Well-being with Lifestyle Savings Accounts

Promote Employee Well-being with Lifestyle Savings Accounts

May 31, 2023

In today's rapidly changing world, employees are seeking more than just a paycheck from their employers. They want benefits that will support them in all aspects of their lives, including their physical, emotional, and financial well-being. As a result, employers have a unique opportunity to provide benefits that not only meet the needs of their employees but also foster loyalty and engagement.

Lifestyle Savings Accounts (LSAs) are a relatively new concept in the world of personal finance, having been around for about five years. Not to be confused with Health Savings Accounts (HSAs), they are a type of savings account that is typically employer-funded and post-tax, meaning that the money is deducted from the employee's paycheck after taxes have been taken out.

While both LSAs and HSAs provide individuals with opportunities to save for specific purposes, they have distinct differences in their focus and usage. LSAs are designed to help individuals save for various lifestyle-related goals, such as buying a home, pursuing education, or funding travel. On the other hand, HSAs are specifically tailored to healthcare expenses. HSAs are typically tied to high-deductible health insurance plans and allow individuals to save pre-tax dollars to pay for qualified medical expenses. Unlike LSAs, which may have broader eligibility determined by the employer, HSAs have specific requirements related to health insurance coverage and are subject to contribution limits set by the IRS. Understanding the unique features and benefits of both LSAs and HSAs can help individuals make informed decisions about their savings strategies and financial priorities.

The idea behind LSAs is to encourage employees to save money for specific purposes, such as buying a home, starting a business, or paying for education or travel. LSAs are different from traditional savings accounts in that the employer chooses what is eligible, and the employee only pays for what is spent. This means that the employee can use the money in the LSA for the intended purpose without penalty.

One of the major benefits of LSAs is that they are 100% tax deductible to the business. This means that the employer can write off the contribution as a business expense, which can help to reduce their tax liability. Additionally, LSAs are a taxable benefit to the employee, which means that the employee will need to pay taxes on the money they receive from the LSA.

The average LSA contribution is typically between $500 and $2,000 per year, depending on the employer and the specific program. Some employers may choose to match the employee's contributions, which can help to incentivize employees to save even more.

Some typical expenses and categories that you can use your LSA for include:

  • Mental health services including counseling, online therapy, stress-relief practices, and more
  • Physical health services such as: gym membership, exercise equipment, nutritional supplements, wellness programs
  • Professional Development
  • Tuition assistance and student loan repayment
  • Family services like childcare and pet care

Prioritizing mental health has become increasingly important, both in our personal lives and in the workplace. Employers are recognizing the impact of mental well-being on employee productivity, engagement, and overall satisfaction. By offering benefits that support mental health, such as counseling services or mindfulness programs, companies demonstrate their commitment to creating a supportive work environment. LSAs can also play a role in promoting mental well-being. Financial stress is a significant contributor to mental health issues, and LSAs can provide employees with a sense of security and control over their financial future. By offering LSAs as part of their benefits package, employers can help alleviate financial concerns, reduce stress levels, and ultimately foster a healthier and more productive workforce.

While LSAs can be a great way to encourage employees to save money for specific purposes, it's important to note that they do come with some restrictions. For example, the employer may choose to limit what the money in the LSA can be used for, or they may impose penalties for early withdrawals. Additionally, the tax implications of LSAs can be complex, so it's important to consult with a financial advisor or tax professional before opening an LSA or making any investment decisions.

LSAs are a relatively new and innovative way for employers to help their employees save money for specific purposes. While they do come with some restrictions and tax implications, they can be a valuable tool for employers looking to incentivize their employees to save.