When asked, what is recommended?
Have you noticed the advertisements about retirement? Fidelity, Voya, John Hancock, Ameriprise, Transamerica, Merrill Lynch, Raymond James, and more produce ads intended to increase the population’s focus on retirement. The bottom line advice is begin saving early, and save more then you are saving now. The financial community widely promotes participation in 401(k) plans and 403(b) counterpart plans for non-profit personnel. Making sure that we capture the maximum possible matching contribution is always wise.
Are we missing effective financial tools?
However, Anna Robaton (CNBC.com June 16, 2016) noted one oft neglected, effective financial tool with significant retirement benefits, the health savings account. Greg Geisler has stated that HSA’s are often more effective in wealth-building than employer-matched 401(k) plans. Specifically, he has written, “The proper advice to some…may be to maximize contributions to their HSA first.” On May 16, 2016, Kate Stalter added this endorsement on money.usnews.com, “Investors shouldn’t overlook HSA’s role as vehicles to save for medical expenses in retirement, when health care expenses generally rise.”
Just how effective is an HSA?
Health Savings Accounts have significant tax benefits for individuals NOW. Contributions made are tax-deductible or pre-tax if made through payroll deduction. All earnings and interest accrue tax free. Finally, withdrawals may be made tax-free for qualified medical expenses which even include acupuncture and substance abuse treatments. They are are also portable since they belong to the saver, quite a benefit in a world where matching fund retirement accounts are tied to the participating employer and are accompanied by complicated transfer and rollover rules.
Why are they an attractive vehicle for retirement planning?
Remember, the tax-free accumulation is unlimited, and there is no requirement to use the saved funds. HSA’s are sometimes confused with workplace Flexible Spending Accounts where unspent funds revert to the employer at the end of the designated plan year. Conversely, funds contributed to an HSA continue to grow as long as they are unused. One of the great burdens on retirement funds is the significant health care costs experienced in later years, projected to be as much as $260,000 per couple by Fidelity’s Retiree Health Care Cost Estimate . Ryan Monette, a financial advisor in Rockofrd, Illinois says, “I recommend funding the HSA even at the expense of lowering retirement plan contributions for those near retirement age. We know that medical expenses will play a role at some point, so why not take advantage of the deduction from current contributions and the tax-free nature from the distributions? In a way, it is saving for retirement, but the funds are earmarked towards qualified medical expenses.”