HSAs and 401(k)s: Why Education is Important
Health Savings Accounts (HSAs) can be a valuable tool for retirement planning, especially when used in conjunction with a 401(k) plan. HSAs offer tax benefits, such as tax-deductible contributions, tax-free withdrawals for qualified medical expenses, and potential tax-free growth if the funds are invested. However, HSAs are intended to be used to cover medical expenses and should not be used as a substitute for a standard 401(k) plan. While 401(k) plans also offer tax benefits and potential investment growth, they are designed specifically for retirement savings and have different contribution limits and withdrawal rules. It’s important for employees to understand the differences between these two types of accounts and to use them appropriately to achieve their retirement savings goals.
At the conclusion of The Plan Sponsor University (TPSU) Fiduciary Education Program held in Denver, Colorado at The University of Denver, Founder and CEO Fred Barstein spoke with Plan Sponsor Annie Foley, who works as an HR Director for a company of 100 employees. Annie expressed concerns toward HSA’s being used by employees as more of a supplemental retirement vehicle rather than using it appropriately to cover high deductibles. According to Foley, incorporating education as a major component can assist employees in comprehending the disparities between 401k and HSA’s. This can consequently enable them to determine how much money they should allocate to both.
Read the Full Transcript Here:
Fred Barstein:
Fred Stein with 401kTV here in Denver, where we just completed a TPSU program at the university in Denver. We have 60 degree weather in January.
Annie:
Beautiful.
Fred Barstein:
It’s pretty nice. Doesn’t get better than that in Denver or anywhere in the country. I’m here with Annie. Welcome, Annie.
Annie:
Thank you.
Fred Barstein:
Okay if we ask you a few questions?
Annie:
Absolutely.
Fred Barstein:
Very good. Well, she’s got her notes here, so she’s all ready. But before we do, tell us a little bit about yourself and the size of your organization.
Annie:
My name is Annie, and I am HR director for a company of about 100 employees.
Fred Barstein:
100 employees? What do you do? What is your-
Annie:
In architecture.
Fred Barstein:
Architecture. And what’s your role?
Annie:
HR director.
Fred Barstein:
Okay, great. There was a lot of discussion about HSAs and the value. They’re becoming more popular, but the question is how do you know how much to put in your 401K? We don’t have unlimited resources and how much to put in the HSA. Couple of your thoughts on that.
Annie:
Yeah. One of the main concerns that I have as an HR person rather than a financial person is that the financial focus seems to be on using the HSA as more of a supplemental retirement vehicle.
Fred Barstein:
Yes.
Annie:
In reality, I see that as putting the cart before the horse and oftentimes employees then only look at it as a retirement vehicle.
Fred Barstein:
I see.
Annie:
They don’t use it for what it is first and foremost supposed to be, which is to help cover that high deductible. They don’t make good decisions based on their current and ongoing health concerns. What we were talking about today, and what I found very interesting, and we only got to brush the surface of was how to have them play well together. Have the 401K and the HSA be used for what they’re supposed to be, play well together, how to know what to put into one versus the other, or just how to make those decisions and increase the education around what is an HSA. What should it be used for? How do you know how much to put into it that you feel comfortable before moving on to then using it as a retirement?
Fred Barstein:
Do you see that as your role or the role of the advisor or both?
Annie:
I personally see it as a role for both. I see it as something that I have to constantly point out because there doesn’t seem to be from the financial side, which is where the advisors usually are of a healthcare mindset to it. Mostly it comes up because I get those questions a lot and I see people make decisions. I see them as they go through their decision-making process, and I know that this is an issue.
Fred Barstein:
A lot of the retirement plan advisors are not comfortable on the benefits side either.
Annie:
Yes.
Fred Barstein:
We need to integrate that. Any final question? Anything you learned or you may want to try to take back and implement?
Annie:
There’s always so many things that I learn from these sessions. I would say the most important thing that’s sitting with me most today besides learning the… or the education around this piece would be auto-escalation and how to do that on an annual basis so that you bring more people into the plan.
Fred Barstein:
Great to do that. You know how to do it, it’s just how do you sell it?
Annie:
Yeah, and make sure that it’s something that we realize it’s a good thing.
Fred Barstein:
Right. To do. And the benefit for everyone. Well, great. Well, thanks for your time.
Annie:
You’re welcome. Thank you for having me.
Fred Barstein:
Annie has also… She’s been here for the TPSU and she’s done a video before, so she’s becoming a media star for 401kTV.
Annie:
I’ll sign autographs later.
Fred Barstein:
Right. Autographs are later. Well, anyway. Well, thank you, and thank you for watching 401kTV. Stay tuned for more exciting videos like this with Annie and others.
