IS HEALTH SAVINGS ACCOUNTS SUPERIOR TO THE 401(k)?

We believe it is, and here's why.....

LOWERS THE HEALTHCARE SPEND FOR THE EMPLOYER

One of the ways employers can begin taking advantage of Health Savings Accounts (HSA) over traditional 401(k) plans, is by moving the company sponsored group plan to a high deductible HSA compatible plan options. Then establish an employer HSA to make tax free contributions, the savings you get from the high deductible plans, afford the ability to make contributions to the HSA. The triple tax advantage makes if more attractive for both employers and employees.

LESS FEES ASSOCIATED WITH HSA'S VS 401(k)

401(k) plan fees can vary greatly, depending on the size of your company 401(k) plan, the number of participants and the plan provider. One study found that large plans (more than $100 million in assets) almost uniformly have fees below 1%. The largest plans are usually below 0.50%.

The small plan marketplace is a different story. Average fees for small plans (under $100 million in assets) were between 1.5% and 2%, with plenty of plans with less than $50 million in assets paying more than 2% a year in fees.

The difference between these two scenarios and an HSA is there is no fees to operate an HSA for an employer and it's employees.

HSA HAS LESS ADMINISTRATION OVER AN 401(k)

No plan filings, no 5500 form submissions, and no administration to maintain your company sponsored HSA. A study conduct by the Harvard Business Review stated more administrators of 401(k) plans would much rather dedicate time on other matters than deal with 401(k) plan administration.

IT'S PORTABLE

No more headaches, when an employee leaves there is no separation process. No rollovers, no penalty liabilities, no hassles. As long as the employee leaves the money that they have accumulated in their HSA they can continue to use for medical expenses, and at age 65 funds can be withdrawn for non medical purposes with no penalty, although you will pay regular tax at time of withdrawal or moving funds to an investment account to defer paying taxes.

WITHDRAWAL GUIDELINES

This is another big differentiator between, HSA's and 401(k), you can withdraw for qualified, medical expenses, with no penalty, in fact it is expensed tax free. Before age 59 1/2 you can never make a withdrawal from your 401(k) without invoking a penalty

Considerations for Comparison	401(k)	Health Savings Account (HSA)
Contributions free from Medicare and Social Security taxes?	No	Yes
Tax-free distribution for medical expenses?	No	Yes
Tax-free payment of Medicare Premiums in Retirement?	No	Yes
May receive employer contribution?	Yes	Yes
Contributions free from state and federal taxes?	Yes	Yes
Ability to invest your funds?	Yes	Yes
Tax-free earnings?	Yes	Yes
Portable? (Account belongs to you, not to your employer)	Yes, but you must rollover account to new custodian to avoid 20% income tax and possible early withdrawal penalty	Yes
Pay penalties or taxes for withdrawing funds before age 59.5?	Yes	No, if funds are used to cover eligible medical expenses
Required to take minimum distributions at age 70.5?	Yes	No

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