Many employers offer Health Savings Accounts (HSAs) alongside compatible high-deductible health plans. Some will even offer to contribute, or match employee contributions, as an extra incentive to take advantage of their HSA.
Ideally, employees would use this account to take full advantage of the HSA as a triple-tax-advantaged retirement savings vehicle: They would contribute the maximum amount, invest those funds, and then watch them grow over time during years when their family is healthy.
Using HSA for Retirement
The average, healthy 65-year-old couple is projected to need more than $350,000 in today’s dollars to cover healthcare costs alone in retirement. Considering healthcare costs have “historically grown faster than inflation,” that number will likely continue to rise. Employees need a funding source to be able to confidently access care in the near term, in addition to a savings vehicle that positions them to afford care needs later in life.
What you need to know: HSA’s have comparable — or better — perks than a 401(k) or IRA with respect to healthcare costs, including:
- HSA contributions reduce taxable income during healthier working years.
- HSA contributions made through payroll are not subject to the 7.65% FICA tax.
- Withdrawals for HSA-eligible medical expenses are tax-free.
- HSA funds can be invested, and earnings through investment accumulate tax-free.
- All HSA funds carry over from year to year.
- Flexibility to withdraw funds for eligible medical expenses when needs emerge.
- Generally, contribution amounts can be changed at any time.
- In retirement, HSA funds can be withdrawn for any purpose and taxed as normal income, just like a 401K.
These traits make the HSA a powerful yet under-utilized investment and retirement tool. Unfortunately, only about 7 percent of HSA participants invest their funds, despite the HSA having perks that a 401(k) or IRA doesn’t have.
The problem? When employees' annual out-of-pocket costs are more than they can contribute, they cannot take advantage of their HSA for retirement.
The financial gap between health plan deductibles and an employee’s HSA amount could force them to use up their HSA spend during healthy working years. Most account holders (over 80%) are not financially able to contribute the maximum amount to their HSA, much less let those funds accumulate over time. Most people do not have enough money in their HSAs to cover a single year of deductibles.
How can we change this?
Allow employees to pay for their out-of-pocket expenses slowly over time with no interest or fees during healthy working years in order to help preserve their HSA funds for retirement.
Why Pair Paytient with an HSA?
Paytient makes additional funds available to supplement employees’ existing HSAs, creating financial flexibility so members can make the most of their tax-advantaged accounts.
- Employees can use Paytient to pay for care before accruing sufficient HSA balances.
- If employees aim to take advantage of the compounding effects of investing their HSA dollars, they can use their Paytient credit line to cover costs and let their savings grow.
- When using Paytient, employees aren’t required to follow the same qualifying expense guidelines as HSAs or FSAs, so employees can use their Paytient card to address care costs that might not usually qualify.
Paytient and HSAs aim to make wellness affordable and accessible, but when used together, they brighten your employee’s financial and physical outlooks in the present and future.