Helping Workers Utilize Their HSAs For Long-Term Savings Goes Beyond Just Health Care.

HSAs have developed into an immensely useful tool for controlling present and future medical bills because of their flexibility and multi-layered tax advantages, yet they are still underutilized.

 

Health Savings Accounts (HSAs), whose assets are expected to reach over $98 billion by the middle of 2022, have solidified their status as a crucial tool for assisting workers in covering their medical expenses. They are an essential retirement savings vehicle that, when managed properly, can significantly improve an employee’s readiness for retirement thanks to their special tax advantages and flexible withdrawal possibilities.

Utilization is nevertheless hampered by a lack of knowledge of the account’s worth, particularly beyond short-term medical savings. According to a recent poll by the Plan Sponsor Council of America, about 80% of plan sponsors need assistance informing employees about HSAs and their numerous advantages.

HSA contribution caps have been increased for 2023 to $3,850 for individuals and $7,750 for families (with a $1,000 catch-up payment for persons 55 and over). The potential for even more savings makes it crucial to increase employee awareness of this underused technology.

 

In order to help employees understand and make the most of their HSAs, HR staff should emphasize the following three main benefits:

Triple tax benefits. Because employee contributions are made before taxes, their taxable income is decreased. Additionally, if they invest HSA funds, they can develop tax-free dividend and capital gain income. They can then at any moment withdraw these funds for permissible medical costs, and the withdrawals are tax-free.

Not a use-it-or-lose-it account. HSAs differ from FSAs in several ways (FSAs). Unused money roll over to the following year and may be invested. Employees should think about paying for current medical costs out-of-pocket and keeping their receipts rather than using HSA money. In this way, they can invest their HSA money and then later withdraw it without having to pay taxes on it (provided they save their proof of qualified medical expenditures paid in previous years).

Powerful tool for saving for retirement. An employee’s HSA can soon become a significant part of their retirement plan by maxing out their annual HSA payments and investing the extra money. If they retire prior to being eligible for Medicare, they may utilize HSA funds to cover medical costs and insurance up until they reach 65. Money from an HSA can be used for ANY purpose when the accountholder turns 65. Non-qualifying medical expenses are taxed at ordinary income rates, exactly like pre-tax 401(k) withdrawals, but qualified medical expenses continue to be tax-free. As a result, an employee’s HSA might complement their 401(k) savings plan. Furthermore, unlike 401(k)s, HSAs do not have minimum mandated distributions. As a result, money may be left in the account, allowing it to grow during retirement.

 

Putting the focus on effective education

Many workplaces only bring up HSAs once a year, during annual open enrollment, when they are marketed as an add-on to the high-deductible health plan. However, educating employees more thoroughly and creatively is necessary to ensure that they properly understand HSAs and their benefits.

 

Here are four tactics that HR departments can use to encourage HSA uptake and maximize usage among their workforce:

Provide evidence of retirement-related health care costs. According to a recent study by RBC Wealth Management, a 65-year-old couple retiring in 2021 will spend more than $660,000 on lifetime health care. Many workers undervalue the cost of health care, and an HSA can be a potent tool for addressing these potential costs. Employee planning for the future can be encouraged by a formal education program that informs them of the true costs of care and the exponential growth rate of medical expenses later in life. This will also increase HSA engagement.

Incorporate HSAs into retirement education program. Integrate HSAs into a larger conversation about retirement saving rather than hosting separate education sessions on your company’s retirement plan. Talking about HSAs outside of the context of medical benefits enhances awareness of their capacity for long-term savings among employees and makes them a more frequent point of contact for them.

Reward involvement. Engagement in HSAs can be greatly influenced by employer contributions and wellness incentives. An alluring incentive like “free” money can do a lot to pique employees’ curiosity in learning more about HSAs. Many businesses tie enrollment in workplace wellness initiatives to employer HSA contributions. This might be a win-win method of rewarding staff members for making healthy lifestyle decisions and encouraging continuous involvement in both HSAs and workplace wellness programs.

Raise awareness of investment capabilities. One of the best ways to optimize the tax-free growth of an HSA is to invest, yet HSA investment menus are frequently disregarded. Of the almost 34 million HSAs nationwide, just 4 million (or around 7%) have at least some of their funds invested; the remainder are still in cash or cash equivalents. Many HSA customers are unaware of the ability to invest their money, however some HSA owners choose not to. The investment education programs offered for HSAs and standard 401(k)/403(b) accounts are vastly different. Consider teaching members how to use bucket strategies to account for short-, intermediate-, and long-term health care savings objectives inside of their HSA in addition to providing knowledge on the investment possibilities accessible within your company’s HSA.

 

HSAs have developed into an immensely useful tool for controlling present and future medical bills because of their flexibility and multi-layered tax advantages, yet they are still underutilized. To ensure that employees are aware of the considerable benefits of HSAs and how to use them for long-term planning, plan sponsors and HR teams must make creative, continuing efforts to highlight capabilities, promote participation, and incorporate HSAs into general retirement plan education.

 

 

 

 

Source: https://www.benefitspro.com/2023/01/04/beyond-health-care-helping-employees-maximize-their-hsas-for-long-term-savings/