US companies have come to accept health insurance premiums as a benefit for employees in recent years. Many companies increasingly see HSA as a plan designed by developers – as a health spending vehicle that allows employees to save for health care expenses on a tax-deductible basis.
That’s so bad that U.S. consumers have more than $100 billion in HSAs, representing the highest savings since the health savings account was introduced in 2003.
“The reason HSAs are so popular and powerful is that they have a triple tax advantage; you get a tax deduction for investing in it, it grows tax-free and comes out free if used for medical expenses,” said Childfree Wealth founder Jay Zigmont.
The main challenge is that you have to be in a high quality health plan (HDHP) to qualify for an HSA. “Choosing an HDHP just to get an HSA may not be a good idea as you can choose a better health care plan without an HSA,” Zigmont said.
Is it like a 401k?
As interest grows in triple threat long-term savings accounts, US workers are keeping their HSA accounts as the centerpiece of their long-term employee retirement plans.
According to the Plan Sponsor Council of America (PSCA) 2022 Health Savings Survey, sponsored by HSA Bank, retirement plan investments are beginning to influence HSA program plans.
“Notably, half of large employers — and more than one-third of respondents overall — indicate that they make or include HSAs as part of retirement plan for employees,” said the PSCA survey of about 450 employees.
One sign that companies are relying on the savings side of HSA plans is the number of automatic enrollments, which are rising.
“40% of respondents are using automatic registration – from 35.3% in 2020 and 32.2% in 2019,” the study reported. “Automatically open an HSA and enroll employees to increase the rate of return.”
This number includes more than half of the small companies that open HSAs directly to employees when they enroll in an HDHP. Additionally, 57.2% allow rollovers from HSAs for newly hired employees, and 62% teach and encourage rollovers from other HSAs – a move that supports the growth of savings accounts these funds,” said the PSCA report.
Financial experts say that health savings accounts have been used as retirement savings plans, especially for medical expenses.
“In this way, they are both health insurance and retirement insurance vehicles,” Zigmont said. “The bottom line is that the tax benefits for HSAs are better than Roth or traditional retirement savings plans.”
The IRA method
Companies like the disillusionment with HSA plans, they are finding other ways to promote the plan for employees – including many of the pension fund philosophy.
“Things really seem to be changing in the way of retirement savings and HSAs,” said The Haney Company founder Brian Haney. “With the growing pressure and recent emphasis in Congress on helping Americans retire safely, and the health and insurance market systems to encourage consumers to understand the importance of sharing in multiple care costs.”
“For those reasons, HSA accounts should continue to grow,” Haney said. “There are certain advantages to investing in these accounts, including capital gains and favorable tax treatment.”
In many ways, many people consider an HSA to be another type of retirement plan.
“Many studies provide information on the cost of health care and retirement,” said Becky Seefeldt, vice president of Benefit Resource Planning. “HSA, given the definition given earlier, is intended to be a retirement plan designed to cover medical and retirement expenses but can be used at any time as the account holder’s financial situation may warrant.”
“The beauty of an HSA is in its ability to be either a long-term savings vehicle or a low-income tax-deductible one,” Seefeldt said. Seefeldt said.
Employers can help employees save dollars to pay for health care and retirement instead of draining a 401k account for qualified medical expenses.
“When you take money out of your 401k and retirement to pay for qualified medical expenses you will pay ordinary income tax,” Seefeldt said. “If you build up a larger balance in an HSA, you don’t pay a penny in taxes along the way, and more importantly a penny in the way out if it’s used for qualified medical expenses.”
How to Get the Most Out of Your HSA Plan
To maximize your HSA experience, continue to treat the management part as you would a 401k plan.
“The best advice is the one I would recommend for any retirement plan,” said Haney Company founder Brian Haney. “Start early, save as much as you can, and carefully set aside money in an appropriate and consistent manner over time.”
The earlier you start, the more money you’ll have in retirement, Haney said.
He said: “Whether you use the money to spend on health care or not, you will not be disappointed that the money is there when you need it the most.”
Additionally, focus on getting the right strategic manager, too.
“Find a reputable HSA provider with low fees, excellent service, and a choice in the type and breadth of investment options available,” Seefeldt said.