Health Savings Accounts (HSAs) offer a handy way for employees to save on current and future health care needs. Did you know they can work alongside 401(k) accounts to boost retirement savings for both medical and non-medical expenses?


Health Savings Accounts (HSAs) are often overlooked in the workplace by employers and employees as a vehicle for retirement savings.  In fact, many aren’t even aware that HSA funds can be invested. HSA accounts typically offer even greater tax benefits than 401(k)s, and can help employees save even more for retirement than a 401(k) plan alone.

Related: Why an HSA is to going change your view of healthcare forever

The Treasury Department established the HSA in 2003 to enable people who are covered by a qualified High-Deductible Health Plan (HDHP) to pay for healthcare expenses with tax-free dollars. HSAs offer three primary tax advantages:

  • Contributions can be made pre-tax or tax-deductible
  • Investment earnings are tax-deferred
  • Funds withdrawn to pay for qualified medical expenses are tax-exempt

More employers are encouraging employees to choose an HDHP coupled with an HSA.  This can reduce premium costs and employees are able to redirect those funds to pay for current medical expenses, save for future healthcare and long term care costs, and/or add to retirement savings.

In fact, a 2017 study by United Benefit Advisors (UBA) showed that HSA enrollment is at 17 percent, up by 25.9 percent since 2015. That’s nearly a 140 percent increase from 2012.

With healthcare costs on the rise, HSAs and 401(k) plans simply go better together. Here’s a refresher on HSAs and some insight into why they’re a powerful retirement savings tool, especially when combined with a 401(k) plan.


Why do HSAs work so well with 401(k) plans?


The Society for Human Research Management points out that when HSAs and 401(k) accounts are presented separately, employees remain unaware of how effective they can be when used together to boost retirement savings.

Employees who don’t use HSAs alongside 401(k)s end up not saving as much as they could for retirement. They are unable to retire when they want to because they haven’t saved adequately. This can cause disengagement in the workplace and a strain on productivity.

According to Fidelity, couples retiring today will need an estimated $260,000 for healthcare costs during retirement. That’s a lot to plan for, and it’s a good reason why HSAs shouldn’t be overlooked as a key strategy for retirement savings.

During your next open enrollment, consider presenting HSAs and 401(k)s as a joint strategy. Doing so might just help your employees retire on time—and keep your business running more efficiently.

Learn more about Aliat retirement solutions for your business.