Let's face it, inflation is high and everyone is looking to save a buck. Many have a powerful savings tool at their fingertips they may not even be aware of, or think it's "too complicated." Be a hero to your employees, show them a path to long-term health and financial wellbeing by educating them about the tax and savings benefits of a Health Savings Account (HSA). HSA's, which can be used to save employees money on a lifetime of healthcare expenses, are one of the most misunderstood types of savings account.
What is an HSA?
An HSA is a pre-tax savings account used in conjunction with a high deductible health plan (HDHP) to pay and save for IRS qualified medical,dental,vision, and prescription drug expenses
HSA's are similar to a traditional savings accounts but have a huge triple tax free advantage not provided by a regular savings account
employee contributions are pre-tax, which reduces taxable income
earnings from invested funds grow tax-free
funds withdrawn for eligible medical, dental, vision and prescription drug expenses are tax-free
Annual HSA contribution limits for 2023 have been increased to:
$3,850 for individuals
$7,750 for families
an additional $1,000 per year catch up contribution allowed for those age 55 or older
HSA's do not contain a use-it-or-lose-it rule
HSA dollars are employee owned and portable
HSA's empower employees to boost retirement savings
By maxing out annual HSA contributions and investing excess funds, an employee's HSA can become an important component of their retirement plan
If an employee retires before Medicare eligibility, HSA savings can be used to pay for medical, dental, vision, prescription drug and some insurance expenses until they reach age 65
At age 65, HSA funds can be used for any purpose
qualified medical, dental, vision and prescription drug expenses remain tax-free
non-qualified expenses are taxed at ordinary income rates, just like pre-tax 401(k) withdrawals
HSA's are not subject to minimum required distributions, meaning money can be left in the account enabling the funds to continue growing throughout retirement
HSA's deliver savings that benefit all income levels
HSA qualified plans usually have a lower insurance premium cost, money saved on premium cost can be deposited in the HSA for future healthcare emergencies
HSA's allow the use of pre-tax contributions to pay for qualified medical, dental, vision, and prescription drug expenses; what is not spent in a plan year remains in the account
Effective Employee Education Strategies:
Demonstrate health care costs in retirement
the projected lifetime cost of care for a healthy 65-year old is estimated over $300,000, not including long term care costs which could be as high as $100,000 per year
many employees underestimate the cost of health care; HSA's can be an effective tool to help address future expenses
Include HSA's as part of your retirement education program
discussing HSA's beyond the context of healthcare benefits increases awareness of their long-term savings power
employer contributions can play a key role in driving HSA engagement
Educate on investment capabilities
HSA funds can be invested in mutual funds
potential earnings grow tax-free
HSA's are powerful tools that require ongoing education designed to show employees how to use their accounts most effectively. Remove the fear of "an HSA is too complicated," or "I don't have extra money to put into an HSA." Communicate the news about the tax and savings benefits of an HSA. Help propel your employees on the journey to long-term health and financial wellbeing.
Need help turning confusion into clarity? Don't currently offer an HDHP option in your employee benefits portfolio?
Contact Koppinger & Associates for assistance in creating benefit plans that add value to employees' lives.