What is a health savings account?

A health savings account (HSA) is a tax-advantaged way to save for qualified medical expenses. Because it offers potential tax advantages and money within the account can be invested, an HSA can be used to pay for both near-term medical expenses and expenses in retirement. HSAs are portable, meaning they move with you when you change employers. An HSA has triple tax advantages:

• Your pre-tax contributions reduce your taxable income (if you choose to fund your account with after-tax contributions, you may be able to take a deduction when you file your taxes)

• The money isn’t taxed while it’s in the account, even if it earns interest or investment returns

• As long as the funds are used for qualified expenses, you won’t owe taxes when you take money out of the account

PRO TIP – After reaching age 65, you can withdraw money from your account for any reason at all without paying a penalty; this will be considered taxable income, though, so you’ll pay taxes on these types of withdrawals.

How does it work?

An HSA must be paired with an HSA-eligible health plan. Once you’re enrolled in this type of health plan, you can make pre-tax contributions to the HSA, creating a cash cushion to help offset the higher deductibles HSA-eligible health plans usually have.

If you don’t need the money right away, you can save it until you do. Many HSAs allow you to invest the money after reaching a certain threshold. (These features set HSAs apart from another popular account, the flexible spending account (FSA). FSA money typically has to be used by the end of the plan year, can’t be invested, and can’t be taken with you to another employer.)

Your employer may make matching contributions to your HSA, so be sure to ask – you won’t get a tax deduction on what your employer contributes, but this extra money has the potential to grow over time if invested.

What’s a qualified medical expense?

Generally, qualified expenses include things big and small, from ongoing costs to unexpected ones, including doctor visits, medications, X-rays, medical equipment, dental care, vision care, and much more. IRS Publication 502 explains the expenses in detail.

What are the contribution limits?

Contributing to your HSA early and investing those savings can help you better afford medical care in the future. Pay attention to the annual contribution limits:

• In 2024: $4,150 (individual coverage) / $8,300 (family coverage)

• In 2025: $4,300 (individual coverage) / $8,550 (family coverage)

Keep in mind: if you are at least 55 years old, you can contribute an additional $1,000 annually.

These limits include employer contributions, so make sure you know how much is being contributed in total.

Do you still have questions?

When planning for your future healthcare expenses, it’s important to understand how your HSA might pair with what you’re saving in your company’s retirement plan. To dig into the details of your personal situation, call the Shepherd Financial team at 844.975.4015.

Rethinking the Employee Benefits Experience

Attracting and retaining high quality employees is not a new challenge, but the benefits landscape has changed dramatically in recent years, particularly since millennials entered the workforce. And now that this generation is today’s largest workforce demographic (hint: it’s your employees who are anywhere from 23 to 38 right now), employers must rethink the construction of the overall benefits package. As you consider how to add value for employees and help your company grow, do you understand what millennials actually want?

The answer is twofold: different options than previous generations required, and the ability to create a customized benefits experience.

Don’t bristle at these desires – especially because of technology, today’s workplace is fundamentally different than it was 20 years ago. It makes sense your employees have new expectations, too. (Speaking of technology, it should be standard to have always-accessible employee benefit information, often through a secure online portal.)

Aside from health insurance and retirement plans, benefit options might include the ability to work remotely, flexibility in work schedules, student loan repayment plans, opportunities for professional development, lifestyle solutions like onsite child care, and corporate investment in wellness initiatives. While some of these options require creative thinking and scheduling, the positive results speak for themselves in overall employee wellbeing and productivity.

Regarding the customized benefits experience, it is becoming increasingly popular – and practical – to offer an à la carte solution. In short, employees receive a fixed amount of money as part of the benefits offering and may decide how to allocate their employer’s contribution. Closer to retirement, a baby boomer might select a higher contribution rate to the company retirement plan and a full suite of health insurance, life insurance, and long-term care insurance; a millennial employee may earmark less money for their retirement plan but include student loan repayment and extra parental leave.

Every company is unique, and so are your employees. Employers certainly have many decisions to make about the options to include, as well as how to structure the benefits program to meet compliance regulations. To discuss ways to better attract and retain employees through the benefits program, call the Shepherd Financial team.

What the Health?

If you’ve been around the past few months, you’ve probably seen that health savings accounts (HSAs) are all the buzz in the retirement industry. But what’s the fuss?

Well, a major fear for adults is that they’re going to run out of money to pay for health care or long-term care as they age. Studies estimate the average 65-year-old retired couple is going to need between $250,000 and $300,000 for out-of-pocket health care expenses, though some reports push those numbers over $400,000. Regardless, it’s an intimidating number, especially for employees already struggling to save for retirement.

So how can HSAs help? These tax-advantaged medical savings accounts were created in 2003 as part of the Medicare Modernization Act to provide Americans with more knowledge about and more control over their health care spending. HSAs are designed to help people save money for current and future qualified expenses.

An HSA can be a very effective companion to a 401(k) plan when preparing for retirement. And for certain employees, after qualifying for their employer’s matching contribution in the 401(k) plan, it could make sense to max out their HSA contributions. There are three primary tax advantages:

An HSA’s positive features don’t end with the triple tax savings – they’re individually owned and portable, which means employees have control of their accounts and can transport them from job to job. Unlike a flexible spending arrangement (FSA), HSA money isn’t forfeited at year-end.

Though there are contribution limits, HSAs allow more than just the account owner to contribute, because after-tax contributions are also permitted (and if made by the account owner, these contributions can also then be deducted on personal taxes). Additionally, individuals age 55 or older can make catch-up contributions.

Employees can easily miss out on an HSA’s advantages if they are not properly educated about its features. The Shepherd Financial team is equipped to help your participants better understand their whole suite of benefits; call us today to schedule an HSA-focused employee engagement meeting!

 

None of the information in this document should be considered as tax advice. You should consult your tax advisor for information concerning your individual situation.

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