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HSA retirement white paper

How HSAs can transform retirement planning and your common questions

July 24, 2023

Many Americans invest and prepare for retirement the same way they did decades ago, but what worked 40 years ago might not be the best approach today. Fortunately, there’s an often overlooked way to help employees build wealth and prepare for retirement. And it’s a solution you might already be offering: the health savings account.

Why HSAs for retirement planning? These accounts provide another way for your employees to diversify their efforts to prepare for retirement. That’s important considering that a 65-year-old couple retiring in 2020 would need an average of $351,000 in healthcare costs throughout retirement. Keep reading to learn more about the challenges of retirement planning, why HSAs are smart way to support employee needs, and to get answers to some common HSA retirement questions.

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HSA retirement

What employees are saying about finances and retirement?

A variety of recent studies have indicated that:

  • Nearly twice as many employees said they were stressed about their finances than said they were stressed about their jobs.
  • 47 percent of all employees say financial stress has caused them to either miss work or has negatively affected their productivity.
  • 54 percent of all employees say financial challenges are their biggest cause of stress.
  • 45 percent of baby boomers have diversified retirement options. The percentage is much higher for younger employees.

Would you like to learn more about what employees are saying regarding their benefits? We recently surveyed nearly 60,000 of our benefits participants to learn more about their needs. We cover some of the survey findings in this blog post and infographic

What employers are saying about employee finances and retirement?

A variety of recent studies have indicated that:

  • The top issues “addressed through financial wellness initiatives were healthcare costs and retirement preparedness.
  • 65 percent of employees participate in their employers’ retirement plan.
  • 80 percent of employers say that employee financial stress is reducing workplace performance, at an estimated cost of half a trillion dollars.

The missing retirement solution? An HSA. 

Despite all the options available, only 36 percent of non-retirees said in a 2019 survey that their retirement saving is on track. Despite all the options available, only 36 percent of non-retirees said in a 2019 survey that their retirement saving is on track. Meanwhile, HSAs are booming in popularity, with total assets eclipsing $104 billion in 2022. That’s nearly double from four years earlier.

HSAs have comparable — or better — perks than a 401(k) or IRA with respect to healthcare costs, including:

  • HSA contributions reduce taxable income.
  • HSA contributions made through payroll are not subject to the 7.65% FICA tax.
  • Withdrawals for HSA eligible medical expenses are tax-free.
  • HSA funds can be invested, and earnings through investment accumulate tax-free.
  • All HSA funds carry over from year to year.
  • Flexibility to withdraw funds for eligible medical expenses when needs emerge.
  • Generally, contribution amounts can be changed at any time.

HSAs and retirement planning was our focus for HSA Day back in 2021. Check out live podcast recording from the event with special guests Johnny Taylor, President and CEO, SHRM; Jennifer McClure, CEO, DisruptHR and Unbridled Talent; and Stefanie O’Connell Rodriguez, podcast host, Money Confidential.

8 HSA retirement questions with Jason Cook, director of healthcare emerging market sales, WEX

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.



Editor’s note: This post was first published in March 2021. It was most recently updated in July 2023.


The information in this blog post is for educational purposes only. It is not legal, financial, or tax advice. For legal, financial, or tax advice, you should consult your own legal counsel, tax and investment advisers.

WEX receives compensation from some of the merchants identified in its blog posts. By linking to these products, WEX is not endorsing these products.

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