Rapid Growth for HSAs

HSAHealth savings accounts are hot, with nearly two-thirds of respondents to a Plan Sponsor Council of America survey saying they believe that even those without a high deductible health plan should qualify. A benefit often cited by employers and employees alike is that HSAs can be a valuable part of one’s retirement strategy, since healthcare expenses are viewed as one of the largest people face in retirement.

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Why employees should max out HSA contributions

The article below was published on September 13, 2017 by Employee Benefit News, written by Robert Lawton.

With healthcare open enrollment season quickly approaching, 401(k) plan sponsors may want to spend some time educating participants on the use of health savings accounts. If you offer a high-deductible health plan to your employees, they probably have the ability to contribute to HSAs. I believe that nearly everyone eligible to contribute to an HSA should max out their HSA contributions each year. Here’s why.

HSAs are triple tax-free
HSA payroll contributions are made pre-tax and when balances are used to pay qualified healthcare expenses, they come out of HSA accounts tax-free. Earnings on HSA balances also accumulate tax-free. There are no other employee benefits that work this way.

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HSA payroll contributions are truly tax-free

Unlike pre-tax 401(k) contributions, HSA contributions made from payroll deductions are truly pre-tax in that Medicare and Social Security taxes are not withheld. Both 401(k) pre-tax payroll contributions and HSA payroll contributions are made without deductions for state and federal taxes.

No use it or lose it
Employees may confuse HSAs with flexible spending accounts, where balances not used during a particular year may be forfeited. With HSAs, unused balances carry over to the next year. And so on, forever. Well at least until the employee passes away. HSA balances are never forfeited due to lack of use during a year.

Retiree healthcare expenses
Anyone fortunate enough to accumulate an HSA balance that is carried over into retirement may use it to pay for many routine and non-routine healthcare expenses. HSA balances can be used to pay for prescription drugs, medical premiums, COBRA premiums, dental expenses, Medicare premiums, long-term care insurance premiums and of course any co-pays, deductibles or co-insurance amounts. There are no age 70 1/2 minimum distribution requirements on HSA accounts like there are on 401(k) and IRA accounts. This makes HSA accounts a much more tax-efficient way of paying for healthcare expenses in retirement, especially if the alternative is taking a taxable 401(k) or IRA distribution. Continue reading

Millennials Drive HSA Growth

dgb-millennialsThe State of Benefits report from BenefitFocus shows that workers under the age of 26 are investing 20% more of their salary in HSAs than other generations. This is certainly due to the fact that nearly half have elected to enroll in high deductible health plans in 2017. While PPO plans remain very popular, especially among older adults, employee contributions to HSAs and FSAs are rising. A growing interest in savings among young people is another factor contributing to the increased popularity of HSAs.

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