As high-deductible health plans have become more common due to the rising cost of health care, so too have Health Savings Accounts (HSAs). While HSAs allow high-deductible health plan participants to set aside money to help offset the added cost created by deductibles, the accounts are now gaining popularity in regard to retirement savings as well. This blog will highlight the emerging trend of using HSAs as a potential retirement vehicle and why this is something you should know about.
The rising cost of health care has forced many employers to adopt high-deductible health plans for their employees. HSA accounts help employees to protect themselves from the financial risk created by deductibles. HSAs are owned by the employee, and while there is a maximum set by the IRS on how much you can put into an HSA annually, the balance rolls over annually, allowing the account to grow. Even if you change employers or your health plan, the HSA account and its balance belong to the account owner. The funds in an HSA are contributed pre-tax as a payroll deduction, and now many participants are starting to accumulate funds in the account as an additional retirement plan.
While 401(k) accounts are what we often think of when it comes to retirement savings, there is an emerging trend among high-deductible participants to use their HSA as an additional retirement vehicle. When withdrawing funds from a retirement account, regardless of how the money is being used, you will pay income tax on the money. However, in the event you need to use the HSA funds for a qualified medical expense, there is no tax penalty to do so.
Depending on the financial institution, your HSA dollars can be invested right away or once a specified account balance threshold is met. While there are penalties for spending HSA dollars on non-qualified medical expenses, once you turn 65 those penalties are lifted, and the money can be withdrawn for any expense and will be taxed as normal income. This year the IRS set the contribution maximum at $3,550 for single enrollees and $7,100 for 2-person or family plans. Participants over the age of 55 can add $1,000 to these maximums as a catch-up contribution.
Understanding the importance of Health Savings Accounts is an important component of being an informed consumer when it comes to health care. A Health Savings Account provides a triple tax savings in that cash deposited is done so pre-tax, money spent on qualified medical expenses is done so tax-free, and interest and capital gains on investments are also tax-free. Taking time to educate employees on these advantages is just one component of Bond Benefits Consulting’s education and advocacy services that our customers have come to know and appreciate. Please don’t hesitate to reach out today to see how Bond Benefits Consulting can help your organization understand the benefit of employee benefits.
Justin Chantra is an Employee Benefits Consultant with Bond Benefits Consulting and has worked in various roles within the employee benefits field for over 15 years. He can be reached at 585-248-5870 x130 or justinc@bondbenefits.com