HSA Investing: 4 Myths to Debunk to Encourage Retirement Planning
June 26, 2019
Your employees can expect to incur nearly $125,000 in medical costs from age 70 on. And for some, costs will be in the hundreds of thousands of dollars. So how can your employees prepare for these costs? One of the best ways is to participate in a Health Savings Account (HSA) and invest their dollars, which gives them the opportunity to grow their funds at a higher rate than the standard interest rate.
Participants with at least $5,000 in their accounts are considered to be in the HSA investing phase. With so much in their accounts, they’re more likely to dip their toes into investment waters and experience an account’s full potential. Find out four HSA investing and retirement-planning myths that may be holding your participants back from making the most of their accounts. And complete the form below to download two resources to learn more about recent HSA trends and innovation.
Myth #1: An HSA Is Only Good For Medical Expenses in the Near Future
The 401(k) has long been a go-to retirement-planning tool. Employee contributions to a 401(k) are tax-deductible, while withdrawals are taxed. With an HSA, contributions are tax-deductible and withdrawals are also tax-free as long as the funds are used on eligible expenses. And, like a 401(k), an HSA also has investment potential. Plus, an HSA stays with the accountholder and funds roll over year to year. That’s why some experts suggest pairing these two types of accounts together and maxing out your HSA contributions each year to plan for the future.
Myth #2: Funds Can’t Be Used After the Accountholder Has Enrolled in Medicare
Once a participant enrolls in Medicare, they’re no longer eligible to contribute to an HSA. However, your Medicare-enrolled employees may not realize they can still spend any existing HSA balance just like they could before they enrolled in Medicare.
Myth #3: Funds Are Always Subject to a 20% Penalty if Used on Non-Medical Expenses
What happens when HSA funds are spent on ineligible expenses? If your employees are younger than 65 years old, purchases are subject to a 20 percent tax penalty by the IRS. However, once they turn 65, funds spent are no longer subject to the 20 percent penalty, regardless of what they’re used on (although it’s important to note that funds spent on ineligible expenses are still subject to income taxes).
Myth #4: HSA Investment Earnings are Taxed
Contributions and distributions (on eligible expenses) aren’t the only ways your employees can save on tax dollars when they participate in an HSA. Investment earnings are also tax-free. Once your employees reach their investment threshold, encourage them to invest their funds and provide educational opportunities to help them reach financial peace of mind.
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(Please note: Discovery Benefits cannot provide investment advice and encourages its participants to seek guidance from a financial adviser for help with investment decisions.)