THE SHIFT FROM 401K TO HSA CONTINUES
Why Use an HSA for Retirement?
An HSA's triple tax advantage, which is similar to that of a traditional 401(k) plan or IRA, makes it a top-notch way to save for retirement. HSAs are "the most tax-preferred account available," writes Michael Kitces, director of financial planning at Pinnacle Advisory Group Inc. in Columbia, Md. "Using one to save for retirement medical expenses is a better strategy than using retirement accounts."
Tax Benefits of an HSA
Your contributions to an HSA can be made via payroll deductions, as well as from your own funds. They are tax-deductible, even if you don't itemize. If they're made from your own funds, they're considered to be made on a pre-tax basis, meaning that they reduce your federal and state income tax liability—and they're not subject to FICA taxes, either. Your account balance grows tax-free. Any interest, dividends, or capital gains you earn are nontaxable.
Any contributions the employer makes to the employee HSA is not counted as taxable income.
Options for the High Deductible Health Plan
OPTION 1: HSA
If employees like setting aside money for a rainy day, an HSA allows them to put pre-tax money in their account to use for medical expenses not covered by their insurance plan. They get to build their own health care costs nest egg, and when the employer makes a contribution there are tax advantages for both employer and employee. Learn more.
OPTION 2: FIXED INDEMNITY PLAN
Employees looking for financial help in meeting their health plan’s high deductible right away or for some of the unexpected health care costs that can blow their budgets, a fixed indemnity insurance pays a set benefit amount for covered common medical expenses. Employees submit the expense, and the plan pays lump sum cash benefit regardless of any other health insurance they may have.
The best way your employees should use their HSA is to treat it as an investment tool that will improve their financial future in retirement. And the best way to do that is to never spend their HSA contributions during working years.
In other words, employees should think of HSA contributions the same way they think of contributions to any other retirement account: untouchable until you retire. Remember, the IRS does not require them to take distributions from their HSA in any year, before or during retirement.
Adoption and Utilization
A study conducted by the Assistant Secretary for Planning and Evaluation (ASPE), a data collection division of Health and Human Service found the best way for employers to on-board their employees with new benefit changes and concepts is through education. Employees prefer orientation that is readily accessible. Mid Michigan Health Insurance Advisors have developed on-line learning management systems that allow employees to learn these concepts and more from smartphones, mobile devices and laptops. Learn more.
Optional, but highly
*Trends predict that HSA will replace 401(k) by 2035 in less than 20 years the market will make a dramatic shift, as employers look to achieve more with less administration and less cost to operate.
This means the COVID-19 pandemic may accelerate the adoption rate and could potentially faze out 401(k) before 2035
* The rates for Aflac illustration for the State of Texas based on weekly payroll cycle; rates may vary by state and plan customization. Talk with your Aflac broker to understand how this could be an additional benefit to your company High Deductible Health Plan option.