HSA For Retirement Savings: How Health Savings Accounts Fit Into the Bigger Picture
The HSA for retirement savings seems to be gaining traction at a steady pace. The latest numbers put total Health Savings Account (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 as retirement savings 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 High Deductible Health Plans (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.
Long Term Impact of an HSA for Retirement Savings
The HSA for retirement savings, while still in its infancy is often being compared to 401Ks in the 1980s. The HSAs offer account holders a holistic approach to a bigger picture benefits plan, according to a recent Pensions & Investments article. As a result, HSAs 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 on overall retirement savings.
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 rather than thinking of them as a long-term savings vehicle.
Include HSA for Retirement Savings into the Annual Benefit Discussion
Using an HSA for retirement savings brings value to those that fully understand the benefits. 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. Both banks and HSA administrators need to do their part as well. Providing options that remove minimum balances or minimum deposits prior to investment will help employees see the value of HSAs from day one.
The more comprehensive education employees receive the more it will help with any uneasiness of moving to an HDHP in the first place. It will also help employees become more comfortable with learning saving and investing strategies for health savings accounts. This, in turn, will help employees reach their overall retirement savings goals – with contributions and investments for 401K plans and HSAs working in tandem.
At The Harrison Group, we partner with employers and their health insurance broker to provide the necessary education and benefits plan consultation to best serve your valued employees. Please call or contact us online if you have any questions including the benefits of using the HSA for retirement savings.