Help Employees Maximize HSAs for Medical Expenses and Retirement Planning
HR leaders can help employees leverage HSAs to their full potential, improving both their short-term health security and long-term financial savings.
When it comes to employee benefits, HR professionals can empower employees with the knowledge and tools to make sound financial decisions. Part of financial wellness includes understanding how to maximize the benefits of a health savings account (HSA). Not every employee recognizes that when they enroll in a high-deductible health plan, they can also enroll in an HSA to help cover qualified medical expenses — assuming they meet the other requirements to enroll set by the Internal Revenue Service. But even fewer see them as a supplemental, strategic investment tool for long-term retirement planning.
Help employees plan ahead
HSAs are flexible and provide triple tax advantages — tax-deductible contributions, tax-free growth, and tax-free withdrawals for qualified medical expenses. And, when managed effectively, they also support long-term financial wellness and planning. By using the tax-free withdrawals for qualifying healthcare expenses in retirement, employees can reduce their healthcare costs when they may need it most — during retirement.
The role of HR in educating employees with HSAs
HR professionals can help shift employees' mindsets about HSAs. Implementing a thoughtful approach to education and communication can help employees understand the benefits of using their HSA as a short-term savings tool as well as a long-term investment strategy. Regularly held seminars and detailed documents are just some ways you can help employees make informed decisions.
By developing content that directly speaks to your various employee segments, you can personalize messaging for everyone's unique needs and financial goals. Don't miss the chance to share data and success stories (in a way that protects individual privacy rights) to help illustrate the key points that employees can grow their HSA balance over time and what that could mean for their retirement security.
Whether employees are early in their career development, mid-career professionals, or approaching retirement, they can all use opportunities to help financially prepare for the future.
Communicating the tax advantages of HSAs
In addition to not understanding the long-term savings benefits, employees might be unaware of the broader tax benefits that HSAs offer. HSAs are unique in that they offer triple tax advantages and account holders 65 and older can make withdrawals for any purpose without penalty (though non-medical withdrawals will be taxed as ordinary income).
Here are some strategies HR professionals can employ to communicate these advantages effectively:
1. Break down tax scenarios
Demonstrate how tax-free investments can grow, HSA contributions lower taxable income, and tax-free withdrawals can help retirees stretch their retirement dollars.
2. Highlight the power of compounding
Use projections to show how even small HSA contributions could potentially grow over time when invested appropriately. This can help employees understand the importance of getting started early and making consistent contributions.
3. Describe the withdrawal rules after 65
Assist employees in realizing the benefits of HSAs as an additional retirement account.
Balancing HSA contributions with other retirement savings
Balancing HSA contributions with other retirement savings options, like a 401(k), is a common challenge for employees. To help properly educate and support employees, you can start by putting a framework in place that helps them prioritize based on their individual circumstances and goals.
Here's a suggested balancing strategy framework:
1. Maximize employer contributions first
If your company offers an HSA match, encourage employees to consider taking advantage of it.
2. Contribute up to the deductible
Educate employees on the benefits of contributing at least enough to cover their annual deductible. This can help ensure that they're prepared for unexpected medical costs while leaving room to grow the account for future expenses.
3. Strategize for retirement planning
After contributing to get the employer match and cover the deductible, employees can focus on balancing HSA contributions with 401(k) or IRA savings.
About Inspira Financial
Inspira Financial provides health, wealth, retirement, and benefits solutions that help strengthen and simplify the health and wealth journey. Inspira works with thousands of employers, plan sponsors, recordkeepers, TPAs, and other institutional partners, helping the people they care about plan, save, and invest for a brighter future. Inspira does not provide investment, tax, or legal advice.
About ADP Marketplace
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