HSAs and retirement plans: employers should tailor their contributions to health savings accounts and qualified retirement plans to ensure they complement rather than cannibalize each other.
Health savings accounts A Health Savings Account (HSA) is a tax-advantaged medical savings account available to taxpayers in the United States who are enrolled in a High Deductible Health Plan (HDHP). The funds contributed to the account are not subject to federal income tax at the time of deposit. are tax-advantaged accounts designed to pay for qualified medical expenses. While many use their HSA HSA Health Savings Account (US)
HSA Human Serum Albumin
HSA Human Services Agency (Nevada)
HSA Health Services Agency
HSA Health and Safety Authority (Ireland) to pay medical expenses as they occur, others are looking to the accounts as a retirement tool.
This is not surprising given that medical costs are a major post-retirement expense. According to according to
1. As stated or indicated by; on the authority of: according to historians.
2. In keeping with: according to instructions.
3. the 2004 Employee Benefit Research Institute Health Confidence Survey, an employee that retires at age 65 needs on average more than $100,000 in savings to cover health expenses during retirement. The average American American, river, 30 mi (48 km) long, rising in N central Calif. in the Sierra Nevada and flowing SW into the Sacramento River at Sacramento. The discovery of gold at Sutter's Mill (see Sutter, John Augustus) along the river in 1848 led to the California gold rush of has simply not planned adequately. HSAs offer a solution that will help many close this gap.
Careful planning by the employer, however, is needed to ensure that health savings accounts complement the employer's retirement program and do not compete for the same contribution funds.
Contributions to HSAs are pre-tax, and qualified retirement plans are tax-deferred, and both also accumulate Accumulate
Broker/analyst recommendation that could mean slightly different things depending on the broker/analyst. In general, it means to increase the number of shares of a particular security over the near term, but not to liquidate other parts of the portfolio to buy a security tax-free. But withdrawals are treated differently.
Withdrawals from an HSA to pay for qualified medical expenses are tax-free including earnings, regardless of age. Nonqualified withdrawals, for reasons other than death or disability, are taxed at a participant's normal tax rate plus a 10% penalty if the participant is under age 65. If the participant is over age 65, the penalty is waived, and the withdrawal is subject to normal taxation.
If a participant takes a withdrawal from the 401(k) plan prior to age 59 1/2, it is subject to the normal tax rate plus a 10% penalty, whether a hardship withdrawal or withdrawal for any other reason. Withdrawals under allowable plan terms after age 59 1/2 are subject to normal taxes. There are some exceptions to the taxation on withdrawals for certain large medical expenses, but in most instances, the amount would not qualify.
Although qualified retirement funds may be available without penalty sooner than HSA funds (age 59 1/2 vs. 65), the tax-free withdrawals for qualified medical expenses at any age make them particularly attractive to many plan participants Plan participants
Employees or other beneficiaries who are eligible to receive benefits from a company's employee benefit plan. .
Employers may contribute to each plan, but they should understand that discrimination rules may impact the operation of the programs, resulting in unintended consequences For the "Law of unintended consequences", see Unintended consequence
Unintended Consequences is a novel by author John Ross, first published in 1996 by Accurate Press. if the HSA cannibalizes the qualified retirement plan.
Discrimination rules for both HSAs and qualified retirement plans are intended to ensure that the plans are operated for the benefit of all participants, not just the highly compensated. An exodus of rank-and-file employees from the qualified retirement plan to the HSA can limit the amount of tax-advantaged retirement funds that highly compensated employees can set aside. This can be an unpleasant surprise to the owner and/or highly compensated employee if this was not communicated in advance.
The IRS An abbreviation for the Internal Revenue Service, a federal agency charged with the responsibility of administering and enforcing internal revenue laws. has allowed employers a great deal of flexibility in how they fired their employees' HSA accounts if a cafeteria plan Cafeteria Plan
An employee benefit plan that allows staff to choose from a variety of benefits to formulate a plan that best suits their needs.
Also known as "cafeteria employee benefit plan" or "flexible benefit plan". is used. As a result, many employers are considering using a matching concept Matching concept
The accounting principle that requires the recognition of all costs that are associated with the generation of the revenue reported in the income statement. , similar to the match used in their qualified retirement plan.
This approach appears attractive on the surface in that it makes communication easier and encourages employees to fund their HSAs and to become more active in their health-care decisions. And lower-compensated employees would likely fred the HSAs attractive. This strategy, however, can cause limitations on retirement savings for highly compensated employees. Fortunately, there are alternate approaches that can make both the qualified retirement plan and health savings accounts a success.
* Employers can match employee health savings account contributions, but less generously than the qualified retirement plan match. This will encourage employees to first fund their qualified retirement plan and then the HSA.
* Employers can contribute a flat dollar amount to employees' health savings accounts while retaining the match for the qualified retirement plan. This allows employees an accumulation for their benefit in both accounts and sets them up to complement each other rather than compete.
* Employers can contribute to the HSA based on employee participation in health-improvement activities such as in wellness or disease-management programs. This would encourage participation in both the qualified retirement plan and health improvement activities.
Careful planning will help employers ensure that both their qualified retirement plan and health savings account are successful. The key is to design programs that complement, not compete, with each other.
Jerry L. Ripperger, a Best's Review columnist columnist, the writer of an essay appearing regularly in a newspaper or periodical, usually under a constant heading. Although originally humorous, the column in many cases has supplanted the editorial for authoritative opinions on world problems. , is director of Consumer Health at Principal Financial Group, Des Moines, Iowa “Des Moines” redirects here. For other uses, see Des Moines (disambiguation).
Des Moines (pronounced /dɪˈmɔɪn/ in English, . He can be reached at firstname.lastname@example.org.
Everett (Member): Great Article! 11/24/2009 3:30 AM
You couldn't be more right on point with these philosophies of HSAs. I hope this article exudes confidence for consumers and businesses. Northern California businesses can visit www.evcoinsurance.com for information and testimonials of HSAs and group health insurance plans.