As more organizations begin to expand their employee benefits, are Health Savings Accounts, or HSAs, a good fit for your employees? An HSA is a savings vehicle designed to assist with out-of-pocket medical expenses, but it can double as another way for your employees to save for retirement. Currently, only those enrolled in a high-deductible health insurance plan are eligible to take advantage of an HSA. Employees can use the funds to pay for qualified medical expenses such as premium payments, deductibles, copays, and prescriptions.
What’s unique about an HSA?
- Triple Tax Advantaged: Here are the three ways HSAs are powerful, from a tax perspective:
- Contributions aren’t subject to federal income tax. Contributions into the account can be made pre-tax through payroll if not done through payroll, they are still tax-deductible for your employees.
- Earnings from investments or interest are tax-free.
- Your employees can withdraw money from their HSA for qualified medical expenses tax-free. And for those over age 65, withdraws for non-medical expenses are taxed as ordinary income, which can help cover everyday expenses in retirement.
- Differences from a Flexible Spending Account
- The account is owned by the employee, not the employer.
- HSAs are portable: Employees can take HSAs with them if they change jobs.
- HSAs are NOT use-it-or-lose-it. Any unused funds remain in the account for your employees for as long as they’d like.
- It can be invested for the future. Similar to a 401(k), there are options to invest HSA dollars in mutual funds, stocks, and other investment vehicles.
If you feel like an HSA may be a welcome addition to YOUR benefits package, please reach out to us. At AFS, we’re here to make complex retirement plans simple.