Funding Your Retirement: How Health Savings Accounts Can Help

Eileen Shaw

Want to provide a health benefit to employees and encourage them to save at the same time?
Health savings accounts (HSAs) are a great way to encourage employees to save money for
medical expenses while also preparing for retirement. We know that medical and retirement
benefits are closely tied to employee retention, and adding an HSA to existing options enables
companies to offer an attractive, tax-free way for employees to prepare for the future.

One of the most common benefits used by businesses is high-deductible health plans (HDHP).
These plans have become popular by business owners trying to both offer a health care benefit
and manage the current and future costs of those benefits. These health insurance plans have
lower premiums and higher deductibles.

The magic happens when you couple a high-deductible health plan with a health-savings
account. This creates a terrific savings option that a surprising number of people don’t
understand.

The HSA contribution is tax-free (or tax deductible if contributed after tax) not just tax-deferred
like traditional 401(k) contributions to a retirement plan. Theoretically, the money can only be
used for qualified medical expenses, but it’s not use-it-or-lose-it at the end of the year, like a
flexible savings account (FSA). And, the expenses that are reimbursable include dental and eye
doctor visits.

And there is more good news: HSA contributions can grow, compound and be invested like a
retirement account if an employee doesn’t deplete it and instead pays medical expenses out of
pocket — which shouldn’t be difficult for those who are young and generally much healthier than
older workers. Until recently, HDHP/HSAs were mostly low-interest savings accounts and
lacked higher-yielding investment choices. But that is fast changing and many investment
options now exist.

An added benefit is that neither the employee nor the employer has to pay taxes on the
contribution and the fiduciary duties are not as onerous as retirement plans subject to ERISA.
Employers often agonize over retirement plans for employees. But we know that 401(k)
accounts and medical benefits can make the difference between keeping or losing an
employee, especially if the company matches employee contributions. To encourage
participation in the HDHP, employers often will make a contribution to the employees’ HSAs on
top of what the employee contributes, which enhances the attractiveness of HSAs.
For employers, as your company grows you can add traditional retirement plans and keep the
HDHP and HSA as the sole option in your health plan or as one of many choices. Pairing a
HDHP with an HSA is a great way to ensure workers have health care and are saving for
retirement at the same time.

Together, let’s consider an out-of-the-box way to beef up those bare-bones benefits packages.
Remember, employee retention is tied to health care and retirement options and it is important
to stay competitive. Now is the time to set up a meeting — doing so can save you time and
money while you provide employees with attractive options to save for the future. If you have
any questions about how to incentivize employees and grow your business, you can reach me
at 303.531.8100 or Eileen.Shaw@myfw.com.