Health Savings Accounts Fit Into Bigger Picture Retirement Savings
Health savings accounts seem to be gaining traction at a steady pace. The latest numbers put total HSA assets around $30.2 billion at the end of 2015, which is triple the 4.2 billion amount reported in 2009 by the 100 largest HSA administrators. The lure of HSAs is the triple tax advantage of tax-deductible contributions, tax-free earnings, and tax-free withdrawals.
The tax preferred treatment of money saved for medical expenses is really the greatest benefit of being covered under a high deductible health plan. As more companies have made the shift to HDHPs, employers have also been more willing to link their plans to HSAs. According to recent research by Mercer LLC, 50% of employers make them eligible for HSAs compared to only 14% in 2009.
Health savings accounts, while still in their infancy, often being compared to 401Ks in the 80s, offer account holders a holistic approach to a bigger picture benefits plan, according to a recent Pensions & Investments article. They are an important component to work into retirement education and planning. The reason being is for the long-term savings impact they have the potential to make.
Currently, employees need to get a little more savvy about how to save and invest in their HSA. For example, an April 2016 Bank of America Merrill Lynch survey found that 55% of HSA holders usually spend their entire balance within a calendar year while 53% consider them to be a way to cover short-term health expenses vs. thinking of them as a long-term savings vehicle.
That’s why benefit advisors and human resource professionals are being encouraged to include discussions about HSAs in employee retirement planning as well as annual medical benefit communication. Banks and HSA administrators need to do their part as well. Removing minimum balances or deposits prior to investment options being available will help employees see their value from day one.
The more comprehensive education employees receive the more it will help with any uneasiness of moving to a HDHP in the first place. It will also help employees become more comfortable with learning the saving and investing strategies for HSAs. This in turn will help employees reach their overall retirement savings goals – with contributions and investments for 401K plans and HSAs working in tandem.