Defined benefit plans, defined contribution plans, IRAs — among the basics that are the bread and butter of saving for retirement. But there is another kind of account which is coming into greater prominence as a way to accomplish that — health savings accounts (HSAs). Greg Fowler, Vice President, Partner Services at HealthEquity, discussed HSAs and how they fit into the efforts to save for retirement at an Oct. 22 session of the ASPPA annual conference held at National Harbor, MD.
Fowler drew a parallel between the growth in the HSA market and that of 401(k)s. It took 10 years for 401(k)s to have the traction HSAs have today, he said, in his discussion of the growth in HSA assets that took place between 2006 and 2016.
HSAs offer a triple tax benefit, Fowler noted: contributions to HSAs are tax-deductible, earnings are tax-free, and withdrawals from HSAs to cover the cost of qualified medical expenses also are tax-free. “This is what everybody loves the most,” said Fowler.
Fowler illustrated the distinctions between HSAs and group retirement plans. Unlike the latter, for which employers are involved in their administration in at least some capacity, HSAs are individual accounts for which an employer is only a facilitator. Additional distinctions, Fowler observed, are that with HSAs there are no minimum force-out rules, and administration fees and contribution limits are lower.
HSAs bridge the gap between being an efficient spender through a health flexible spending account and a health reimbursement arrangement, and being a saver through a 401(K). They entail saving, but also being a better consumer, he said. HSAs enable spenders to become savers; in addition, he argued, HSAs facilitate optimization of contributions and reduce the amount of money from a 401(k) that one may need to use to cover health-related expenses. And, he added, HSAs can be used as a traditional IRA is after age 65.
Ultimately, it’s a fundamental difference, Fowler indicated, telling attendees that “it’s a mindset shift.” But how does one accomplish that? “This is where education comes in,” Fowler said, suggesting that participants should be educated on coordination of benefits between 401(k)s and 403(b)s and HSAs.
Fowler also advocated expanding current retirement readiness to include healthcare needs, as well as adding a new way to track financial healthcare readiness. He suggested that providing statements to participants is a big way to accomplish that.
Health and wealth are connected problems, Fowler noted. “That is why this will continue to grow,” he said.
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