US companies have embraced health savings as an employee benefit in recent years. Many businesses increasingly view the HSA as the plan’s developers intended — as a health care spending vehicle that allows users to save for health care costs. in health on a tax-advantaged basis.
That premium is so good that U.S. consumers now have more than $100 billion held in HSAs, representing the highest funding point since health savings accounts launched in 2003.
“The reason HSAs are so popular and powerful is that they have a triple tax benefit; you get a tax deduction for putting the money in, it grows tax-free and comes out tax-free when used for medical expenses,” said Childfree Wealth founder Jay Zigmont.
The main challenge is that you must be in a high-deductible health care plan (HDHP) to qualify for an HSA. “Choosing an HDHP just to get an HSA may not be a good idea because you may be able to choose a better health care plan without an HSA,” says Zigmont.
More Like a 401k?
As interest in a triple-threat long-term savings account grows, US employers are increasingly positioning their HSA accounts as an important part of their long-term employee retirement strategies. .
According to the Plan Sponsor Council of America (PSCA) 2022 Health Savings Account Survey, sponsored by HSA Bank, investment-based retirement plans are beginning to influence HSA program designs.
“Most notably, half of large employers — and more than a third of respondents overall — indicated that they would create or maintain an HSA as part of a retirement savings strategy for employees,” the PSCA survey of approximately 450 employers said.
One sign that companies are leaning toward the savings aspect of HSA plans is automatic enrollment numbers, which are on the rise.
“40% of respondents are using automatic enrollment – from 35.3% in 2020 and 32.2% in 2019,” the study reports. “Automatically opening HSAs and enrolling employees dramatically increases the savings rate.”
This number includes more than half of small organizations that automatically open an HSA for employees when they enroll in an HDHP. “In addition, 57.2% allow rollovers from HSAs for newly hired workers, and 62% percent educate and encourage rollovers from other HSAs – steps that support the growth of these savings. account,” the PSCA report said.
Financial experts say health savings accounts are already being used as retirement savings plans, especially for medical expenses.
“In this way, they are both a health savings vehicle and retirement savings,” Zigmont said. “The key is that the tax benefits for HSAs are better than Roth or Traditional retirement savings plans.”
The IRA Way
Companies seem so committed to HSA plans, they are looking for other ways to optimize the plans for employees – including a more philosophic retirement investment.
“Things are definitely trending up in the way of HSA retirement investing,” says The Haney Company founder Brian Haney. “With increasing pressure and recent legislative emphasis on helping Americans retire successfully, combined with trends in the medical and insurance markets to encourage consumers to recognize the need to share more of the burden of care costs.”
“For those reasons, HSA accounts should continue to grow in prominence,” Haney said. “There are certain advantages to putting money in these accounts, including investment income and favorable tax treatment.”
In many ways, HSAs are now considered by many to be an alternative type of retirement plan.
“Many studies detail the cost of medical care in retirement,” said Benefit Resource’s vice president of strategy Becky Seefeldt. “An HSA, as detailed previously, is set up as a retirement plan designed to cover medical expenses in retirement but can be used at any time as the financial situation of the tag -belonging to the account will be guaranteed.”
“The beauty of an HSA lies in its ability to be a long-term savings vehicle or a short-term tax-advantaged pass-through or spending account,” says Seefeldt.
Employers can help employees save dollars to pay for health care in retirement instead of draining a 401k account for qualified medical expenses.
“When you take money out of a 401k in retirement to pay for qualified medical expenses you have to pay ordinary income tax,” says Seefeldt. “When you build a larger HSA balance you don’t pay a penny in taxes going in, and more importantly a penny going out when used for eligible health expenses.”
How to Get the Most From Your HSA Plan
To optimize your HSA experience, go ahead and treat the administration part as you would a 401k plan.
“The best advice is the only one I would recommend for any retirement plan,” says The Haney Company founder Brian Haney. “Start early, save as much as you can, and aim to allocate funds strategically in a consistent manner over time.”
The earlier you start, the more money you’ll have when you retire, Haney said.
“Whether you can use the funds for medical expenses or not, you won’t be disappointed that the funds are there for you when you need them the most,” he said.
Additionally, focus on getting the right plan manager, too.
“Find a reputable HSA provider with low fees, excellent service, and choice in the type and breadth of investment options available,” says Seefeldt.