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Leveraging HSAs as a Wealth Building Strategy for Now and in Retirement

Adam Berry · April 11, 2024 · 8 min read

hsas as wealth building strategy

The retirement savings gap in the U.S. could be as high as $14 trillion. In addition, more and more employees are reporting feelings of financial stress and delaying retirement– even those that are in the top 15% of earners. A recent report by Graystone Consulting found that 52% of employees reported feelings of financial stress (even those making $100,000 or more a year) which translated to 156 work hours, per employee, they spent distracted by said financial stress. In addition, 70% of employees want their employer to help them with their financial wellness. 

People want help building wealth and saving for retirement and employers want more tools they can offer their employees to solve this problem. That’s where financial institutions can come in. By offering their commercial customers a Health Savings Account (HSA) solution that employers can pair with their group High Deductible Health Plan (HDHP), financial institutions can provide employers with a financial wellness solution that helps their employees build wealth, retirement savings and overall financial fitness. 

What is a traditional HSA?

A traditional HSA is like a health checking account that earns interest. Anyone can contribute money to this account such as the employee, their employer, a friend or family member. The contributions are tax-free to the account holder, they grow tax-free (contributions earn interest), and if the withdrawals are for qualified medical expenses, said withdrawals are tax-free as well. That means the account holder can save up to 35% on the retail cost of their medical expenses (depending on their tax bracket). For example, if an account holder is in the 24% federal income tax bracket, an HSA could save them 24% on federal taxes, 7.65% on payroll taxes, and 3.35% state taxes for a total savings of 35%.

In addition, HSAs roll over from year-to-year, unlike an FSA or HRA. That means account holders that don’t spend all of their contributions in a given year can start to build a medical savings safety net. Once the account holder retires, the HSA functions the same as any other retirement account in that it can be debited for general expenses and all of those expenses, except debits made for qualified medical expenses, are subject to the appropriate income tax rate. Even in retirement, HSA withdrawals for qualified medical expenses remain tax-free. 

Employers can only offer employees an HSA if they also offer an HDHP. But since approximately 53% of employers currently offer an HDHP, this is a relevant financial benefit for at least half of your commercial clientbase (statistically speaking). 

Why HSAs make the best savings accounts

HSAs make the best savings accounts because they’re structured to serve dual needs: tax-free saving for expenses account holders incur now and tax-free saving for retirement. Traditional savings accounts can also be used to save for expenses now and later, but they don’t receive the same tax-favored status. 

By using their HSA for medical expenses now and for retirement, account holders enjoy real tax savings (that allows them to build wealth faster) while they retain the flexibility to use their savings now if they need them. That’s flexibility a traditional retirement account doesn’t allow for. In addition, all disbursements from traditional retirement accounts are taxed at the appropriate income tax rate, while disbursements from HSAs that are used for qualified medical expenses remain tax-free in retirement. This allows account holders to hold on to more of the wealth they’ve built.

How HSAs contribute to true wealth building strategies

To build wealth, account holders need to be efficient with the expenses they incur, reducing costs where they can, while simultaneously increasing their deposits. An HSA can contribute to a true wealth building strategy by providing a vehicle that helps account holders achieve both goals.

Expense Efficiency

An HSA can help account holders contain and even reduce their expenses in several ways:

Lower health insurance premiums. The average health insurance premium for a family plan has increased 47% in the last 10 years (the average cost for all health insurance premiums rose 7% in 2023). This doesn’t just affect employers since the average private sector employer covers 67% of the health plan cost. That’s why 53% of employers are now offering HDHPs , as they benefit both the employers and the employees.

HDHPs typically have the lowest annual premiums of the traditional health insurance plans. That means that employees who are signed up for their employer’s group HDHP with an HSA health plan, can contain or reduce (in the event they are moving from a more expensive health plan) the amount they will spend on health insurance. With an HDHP, ACA-approved preventative care is 100% covered and the option of opening an HSA enables account holders to put aside money for healthcare expenses and reimburse themselves tax-free.

Tax savings. Contributions to HSAs are tax-free for both employees and employers and therefore lower employees’ tax basis. Some employees who are close to the bottom threshold for their income tax bracket, can even drop themselves down to a lower tax bracket if they contribute enough to their account up to the IRS-imposed annual limit

HSA balances can be invested and that growth is also tax-free and can be spent tax-free on qualified medical expenses. In addition, as long as an account holder’s HSA is open and funded, they can reimburse themselves for medical expenses at any time tax-free in the future, whether that’s ten months or twenty years in the future.  

After age 65, HSA account holders can use an HSA on non-medical expenses, which are subject to regular income tax, and this could help them save because they are in a lower tax bracket.  

Lower effective cost of medical care both now and in retirement. Since contributions and distributions to account holders’ HSAs are tax-free, using those HSA contributions to save and pay for medical care saves them up to 35% on the retail cost of said care (depending on their tax bracket). 

This is even more important when the account holder is retired and on a fixed income. The average couple retiring in 2023 could expect to spend approximately $315,000 on medical expenses throughout the rest of their life. Being able to pay for these expenses tax-free helps retired account holders hold on to more of their wealth.

HSA account holders, and the financial institutions and advisors that serve them, should check in with their retirement and health savings goals. Are they on track to have enough saved in retirement for health related expenses? If not, what strategies above can be incorporated to help boost their savings and preparation? 

How saving reimbursements for retirement contributes to overall wealth

One way that financial institutions can help their account holders build wealth is to show them the benefit of saving their reimbursements from their HSA until retirement. Since HSA balances never expire and account holders retain ownership of their account regardless of whether they change employment or health insurance coverage, HSAs are a powerful tax-advantaged savings tool for retirement. Especially if account holders invest their contributions.

If account holders can afford to pay for their out-of-pocket medical expenses, and choose to do so without reimbursing for them through their HSA, they can grow their account balance faster due to compound interest. That way, in retirement when they’re on a fixed income, and their medical expenses will typically be higher due to the aging process, they will have a larger pot to draw from. As a reminder, their distributions in retirement for qualified medical expenses remain tax-free.

Why Lively

Using Lively as your HSA administrator and partner has multiple benefits. We set your financial institution up with a solid foundation to launch or transition an HSA offering. Lively also provides ongoing sales enablement and distribution support, as well as resources for employee and account holder education. In addition: 

  1. Our dashboards, for both account holders and employers, are expressly designed for ease of use. All of the important information is reflected clearly and reports that convey actionable information for employers are easy to run.

  2. Our customer service is knowledgeable, responsive, and has a customer satisfaction score nearly three times the industry average.

  3. Lively provides employers HSA administration, employee onboarding and communication, ongoing education resources, tax reporting and compliance and risk assessments. 

  4. We run on proprietary technology that allows us to integrate with existing systems and offer a co-branded HSA solution, including co-branded debit cards.

  5. Our platform has award-winning features like the digital shoebox that creates a record and ledger of account activity, including the ability of account holders to upload and record receipts, allowing them to save their receipts and easily reimburse themselves in retirement.

  6. We offer two different, top-rated investment options for account holders: Devenir’s Guided Portfolio and Charles Schwab Health Savings Brokerage Account (HSBA).  

Get started with Lively today

Lively is your partner in providing existing and potential customers with a powerful wealth building tool. Grow deposits, generate new customer relationships, discover new revenue streams and more with Lively’s top-rated HSA. If you’re ready to modernize your suite of financial products by including one of the most popular HSAs in the industry, reach out to Lively today.

Adam Berry

Adam Berry

Adam Berry oversees Lively’s Financial Institution Partnerships channel and works with banks across the country to develop and implement HSA product solutions. Over the last 20 years, Adam has gained a significant amount of HSA experience working for national TPAs and creating HSA programs within brick-and-mortar regional banks. HSAs are a personal passion of Adam’s, and he specializes in bringing entities together to discuss transparent, unique, and innovative solutions that result in a better way to do business, increase revenue for Lively’s banking partners, and improve the lives of their mutual customers.

piggy bank on pink background


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A Health Savings Account (HSA) and Healthcare Flexible Spending Account (FSA) provide up to 30% savings on out-of-pocket healthcare expenses. That’s good news. Except you can’t contribute to an HSA and Healthcare FSA at the same time. So what if your employer offers both benefits? How do you choose which account type is best for you? Let’s explore the advantages of each to help you decide which wins in HSA vs FSA.

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Health Savings Accounts

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Disclaimer: the content presented in this article are for informational purposes only, and is not, and must not be considered tax, investment, legal, accounting or financial planning advice, nor a recommendation as to a specific course of action. Investors should consult all available information, including fund prospectuses, and consult with appropriate tax, investment, accounting, legal, and accounting professionals, as appropriate, before making any investment or utilizing any financial planning strategy.



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