The Case for Health Savings Accounts to Improve Retirement Readiness. A recentfrom Forbes points out that retirement readiness is more than simply being able to afford one’s daily living expenses in their post-working years. It also means having the ability to foot the bill for the high cost of healthcare.
The figures vary on how much medical care will cost the average retired couple. Forbes quotes data from the Employee Benefit Research Institute (EBRI) that indicates some couples may need as much as $370,000 to cover their medical expenses. That’s a hefty chunk of change, but employers have an opportunity to help improve their employees’ retirement readiness by offering health savings accounts (HSAs).
Here’s how they work: HSAs are tax-advantaged savings accounts employees can use to save for current medical expenses, as well as those they might incur in retirement. They can be a solid addition to your benefits menu, and an excellent recruiting and retention tool. Many employers offer an HSA paired with a high-deductible health plan (HDHP), which can help them save money compared to a traditional high-premium medical plan. What’s more, it allows employers to offer the HSA as an “enhanced retirement program,” as Forbes puts it, which can benefit employees who wish to plan for their future medical costs and set aside funds to pay for them.
One enormous benefit is that HSAs offer a “triple tax advantage” many employees don’t know about. For starters, contributions go into an HSA on a pre-tax basis. In addition, the funds grow tax-deferred, and withdrawals that are used to pay for qualified medical expenses aren’t taxed. Martin Trussell, Executive Director of ECFC, a non-profit focused on tax-advantaged employee benefits, and the author of the Forbes article, notes that employers who offer HSAs have a significant opportunity to educate employees on the triple tax advantages of these accounts, and how they can help provide a boost to retirement preparedness.
There are other HSA benefits, too. Employers and employees can make contributions up to a certain limit each year, either via pre-tax payroll deductions or direct tax-deductible contributions. In addition, HSA interest isn’t taxed, so long as the money is used to pay for qualified medical expenses. And withdrawals aren’t taxed, either, as mentioned above — even if the account holder is retired and receiving Medicare.
Similar to a traditional 401(k), the money in an HSA can also be invested in a variety of vehicles, including stocks, bonds, mutual funds, etc., typically available through a brokerage account. Most workers don’t know they can invest their HSA savings — another education opportunity.
Trussell points out there are numerous resources available to employers who want to help their employees make the most of their HSAs, including the IRS. A good old Google search will turn up a metric ton of information on HSAs, too. He also notes that sharing information with employees throughout the year — not just during open enrollment — will remind them that HSAs can be started and funded anytime. Your benefits or retirement plan advisor may also be a good source of information on HSAs, and can work on-site with your employees to help them get their accounts set up.
In his article, Trussell quoted a recent Arthur J. Gallagher & Co. survey, which found that while 78% of employers offer a retirement program, just 37% take steps to measure retirement readiness. Are you part of the group that keeps tabs on retirement readiness? Would you like to be? If you already offer an HSA as part of your benefits program, consider making sure your employees understand how this valuable tool can help them improve their retirement readiness. If your benefits menu doesn’t currently include an HSA, it may be worth looking into.
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