For the second straight year, HSA investment assets increased by more than 50 percent year-over-year. And with almost 6 percent of HSAs now investing at least a portion of their funds, that could be a sign that more individuals are leaning on these accounts for retirement planning.
There’s real value for you and them in re-thinking how you position HSAs within your employee benefits offering. An HSA has perks as a retirement-planning tool that even a 401(k) or IRA don’t have, which we outline in our just-published white paper. We also recently hosted a webinar so you could hear directly from our resident HSA experts Jeff Bakke, Chris Byrd, and Jason Cook, which you can view here.
Keep reading for Jason's answers from the webinar, or click below to get your free HSA retirement white paper.
How do FICA taxes work for an HSA or 401(k)?
“A 401(k) is a tax-deferred account where individuals do not pay income taxes on amounts contributed,” Cook said. “It's important to understand that while you do not pay income taxes on money contributed to a 401(k), you still pay FICA taxes, which go toward Social Security and Medicare. That means that the FICA taxes are still calculated based on the full paycheck amount, including an individuals’ 401(k) contribution. With an HSA, pre-tax payroll contributions are exempt from both income taxes and the 7.65% FICA tax.”
What percentage of HSA-eligible employees participate in HSAs?
“The percentage of individuals covered by an HSA eligible health plan that actually open an HSA varies by market surveyor,” Cook said. “SHRM reported in 2020 through a survey of 1,637 respondents that close to 70% of those eligible to open an account, opened and funded an HSA. That means we have roughly 30% that are taking on more deductible risk without getting the offsetting benefits that an HSA affords.”
Will HSAs ever fall under ERISA jurisdiction?
“HSAs have been exempt from ERISA since the first accounts opened in 2004,” Cook said. “No one can predict what may happen in the future regarding HSAs falling under ERISA, but we don't see anything, currently, that leads us to believe that the HSA will be subject to ERISA in the future.”
Are there discrimination risks in contributing different amounts to employees’ self-only HSAs versus family HSAs?
“Employers are absolutely able to contribute different amounts to employees on a single plan versus a family plan without being considered discriminatory,” Cook said. “So long as amounts contributed to single plan employees are the same and amounts contributed to workers on a family plan are the same.”
Can someone open an HSA without going through their employer?
“Absolutely,” Cook said. “As long as an individual has an HSA-eligible health plan, that individual may establish an HSA with any designated trustee or custodian of HSAs. Further, the IRS does not limit the number of HSAs that an individual can establish. So, if an individual does not like their employer sponsored HSA program, that individual may establish a second HSA with a custodian/administrator of their choosing.”
Can you use HSA funds to pay the cost of IRMMA charges in Medicare for Part B and D?
“IRMMA charges are extra charges added to your Medicare Part B premium dependent on ones modified adjusted gross income,” Cook said. “The IRS permits Medicare Part B and D premiums as eligible expenses, so those payments may be made from an HSA tax-free.”
Can small employers who do not offer health insurance to their employees still create/contribute to an HSA for their employees?
“Yes,” Cook said. “Employers may establish an HSA program for employees that enroll in an HSA-eligible health plan in the non-group market.”
What does the IRS provide for guidance on HSAs?
IRS Publication 969 outlines health savings accounts.
Watch the video to hear more from our own Jason Cook about the retirement-planning potential of an HSA.
The information in this blog post is for educational purposes only. It is not legal or tax advice. For legal or tax advice, you should consult your own counsel.