Triple Tax Advantage in HSAs
Published on July 17, 2018
Growing Interest in HSAs
Their Triple Tax Advantage Makes Them Attractive Investments for Retirement
As we wrote in a prior post, health savings accounts (HSAs) have been growing in popularity as a way to cover qualified medical expenses (for individuals with high-deductible health plans or for retirement healthcare costs) and as longer-term savings vehicles. They are popular among employers as well; according to the 2017 Health Savings Account and Retirement Plans report from the Plan Sponsor Council of America, 75 percent of companies (that offer benefits) “regard the HSA as part of their retirement benefits.”
HSAs provide triple tax benefits
HSA contributions are tax deductible (or pretax if you are contributing through a workplace-sponsored plan), the funds grow tax free, and the withdrawals are tax free if made for qualified medical expenses. Those expenses include premiums, copays, coinsurance and deductibles. (After full retirement age, the funds may be used for other expenses without penalty, but those withdrawals are considered taxable income.)
Interest is growing in HSAs
Although these accounts were designed as short-term savings vehicles (contributions in and out to cover medical expenses that year, in tandem with the high-deductible health plan), they are becoming more popular as long-term investment plans. In a recent survey, Devenir Research reports that:
- As of year-end 2017, there were 22 million accounts holding about $45.2 billion in assets. This is an 11 percent increase in accounts and a 22 percent increase in assets from 2016.
- A January 2018 supplement to the original survey reported nearly $50 billion in HSA assets.
- The average total balance of an HSA investment account was $16,457, over eight times larger than a non-investment holder’s average account balance.
- Devenir projects that the HSA market will exceed $64 billion in assets by the end of 2019, among approximately 27.5 million accounts.
Self-Direct and Grow Your HSA
For those individuals who are self-directing their health savings account, they could be building more retirement wealth to cover healthcare and other costs through alternative assets in their HSA.
As with Roth or Traditional IRAs, SIMPLE IRAs and SEP IRAs, individuals can self-direct a health savings account. The annual contribution limit for individuals with high-deductible health plans is currently $3,450 and $6,900 for families. The contributions to an HSA roll over year after year without limit, so investors who deposit more than they need to cover immediate medical expenses can grow their accounts not only through contributions but by investing in alternative assets.
Next Generation makes it easy to open a health savings account, and our helpful professionals can answer your questions about nontraditional investments that can be included in your plan. Email us at NewAccounts@NextGenerationTrust.com or give us a call at 1.888.857.8058.Back to Blog