HSAs: Maximizing benefits

If your employees don’t understand all the features and strategies of their health savings accounts (HSAs), they may be missing out on opportunities to prepare for retirement. While employees are getting more familiar with using HSAs to pay for current medical expenses, there is still work to be done to educate them on how HSAs can be used longer-term to help cover health care costs in retirement.

The proof is in the numbers: According to Devenir, a resource for health account research and trends, 64% of HSA-holders are defined as “spenders” (versus “investors”), with a balance of less than $1,000.1 Many employees (54%) whose plans make investments available aren’t even aware they have the option.2 In fact, Devenir reports only 16% of assets in HSA accounts nationwide are invested.1

To help maximize benefits, employees should understand that HSAs offer a powerful way to help build retirement savings alongside their 401(k) while managing health care expenses. Similar to a 401(k), money can be contributed to an HSA via tax-free dollars, and an HSA could benefit from the tax-free potential in an interest-bearing account or potential gains in an investment account. These funds can be used to help cover eligible medical expenses in retirement. What’s more, money withdrawn from an HSA for qualified medical expenses is also tax free.3 Employees have the opportunity to build their HSA accounts in the years leading to retirement by maximizing contributions, letting account balances carry forward year to year and directing the investment of HSA contributions, if the plan allows.

To help your employees unlock the full potential of the tax-advantaged HSAs, employers should consider:

Delivering targeted messages about the advantages of HSAs, including how they can pair with a 401(k) to help build retirement savings

Promoting the longer-term investment option of HSAs

Maximizing multiple communication channels

Emphasizing guidance and modeling tools

Key takeaways

Download our new white paper, The health savings account (HSA): A prescription for retirement, for more details about the HSA benefits and opportunities for employers.

Talk with us about educational strategies that could help optimize your HSA offering.

Don’t have an HSA offering? Bank of America, N.A. can help you evaluate if it’s right for your company.4

1 Devenir, 2017 Midyear HSA Market Statistics & Trends, August 2017.

2 2018 WEX Health Clear Insights Report, May 2018.

3 About Tax Benefits: You can receive tax-free distributions from your HSA to pay or be reimbursed for qualified medical expenses you incur after you establish the HSA. If you receive distributions for other reasons, the amount you withdraw will be subject to income tax and may be subject to an additional 20% Federal tax. Any interest or earnings on the assets in the account are tax-free. You may be able to claim a tax deduction for contributions you, or someone other than your employer, make to your HSA. Certain limits may apply to employees who are considered highly compensated key employees. Bank of America recommends you contact qualified tax or legal counsel before establishing an HSA.

4 Mutual Fund investment offerings for the Bank of America HSA are made available by Merrill Lynch, Pierce, Fenner & Smith Incorporated (“MLPF&S”), a registered broker-dealer, member SIPC and a wholly owned subsidiary of Bank of America Corporation (“BofA Corp.”). Investments in mutual funds are held in an omnibus account at MLPF&S in the name of Bank of America, N.A. (“BANA”), for the benefit of all HSA account owners. Recommendations as to HSA investment menu options are provided to BANA by the Chief Investment Office (“CIO”), Global Wealth & Investment Management (“GWIM”), a division of BofA Corp. The CIO, which provides investment strategies, due diligence, portfolio construction guidance and wealth management solutions for GWIM clients, is part of the Investment Solutions Group (ISG) of GWIM.