HSAs: Little Understood, But Here To Stay

JUNE 28, 2017 • BEN MATTLIN -Financial Advisor
Quote by Dr. Katy Votava in this article

Back in December 2003—well before there was an Affordable Care Act, let alone talk of repeal and replace—then-President George W. Bush created health savings accounts (HSAs). Still scarcely understood, HSAs have nonetheless grown in popularity. According to the Devenir Group, a Minneapolis-based industry organization, there were nearly 17 million HSAs, with an aggregate value of more than $30 billion, at the end of 2015, the most recent results available.

But as the health care debate continues in Washington, are HSAs still relevant? More importantly, are they a good idea for your clients?

HSAs For Retirement Planning

HSAs are only for people with certain high-deductible health plans (HDHPs). They allow account holders to put aside money to help pay those high deductibles and other medical expenses later, as needed. But advocates insist they are also great savings and retirement planning vehicles.

There are several reasons. First, money that goes in can be deducted from federal income taxes. Plus, it grows tax-free. And it can be withdrawn tax-free at any time if used for qualified medical expenses. “HSAs are the only account type that gives you the tax trifecta,” says Christopher Hershey, a senior financial planning analyst at eMoney Advisor in Radnor, Pa. “Simply put, they are the most tax-efficient savings vehicles available.”

HSAs are similar to flexible spending accounts (FSAs) with one important difference: Health Savings Accounts are not use-it-or-lose-it. “There’s no requirement to deplete the account by a specific date,” says Tim Steffen, director of financial planning at Baird in Milwaukee. “You can use it to pay for any health-care expenses incurred after the date you fund it. This means you can fund it today, let it grow during your working years, and then take withdrawals later in life for expenses you incurred in previous years.”
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