THOUGHT LEADERSHIP

HSAs Shine Brightly in the Retirement Savings Universe

In the universe of retirement options, there are a lot of bright stars—401(k)s (and their nonprofit and public-sector counterparts, 403(b) and 457 plans), IRAs, and Roth 401(k)s and IRAs. And while each of these retirement savings options offers its own distinct advantages, shining brightest among them in the retirement stratosphere is the often-overlooked HSA (health savings account).

What’s so great about an HSA? Think, flexibility. HSAs are the heavyweights of tax-advantaged* accounts, enabling account holders to nimbly balance their need for immediate access to funds for qualified health expenses with long-term savings goals. They also effortlessly lift heavy tax burdens with tax-free contributions, interest and investment earnings. Even withdrawals for qualified expenses are tax-free!*

Savings Is My Middle Name

With savings built right into the health savings account’s name, it’s no wonder HSAs are strong components of the retirement planning constellation. But with so many different retirement account options, it’s easy to overlook the long-term potential of HSAs. Many account holders still use them as if they were flexible spending accounts that have to be used each year to avoid forfeiture of funds—a common misconception cured by ongoing education.

Different but Alike

One thing that’s common among all retirement saving choices is the opportunity to invest for additional growth potential. And it’s common knowledge you can invest in a 401(k), IRA and similar plans, it’s not widely known that you can also invest in an HSA (with tax free investment earnings).

After meeting the minimum balance requirements (usually $1,000), HSA account holders can invest funds, that exceed the required balance, into the HSA custodian’s available options. Most custodians offer a variety of investment options. And similar to a 401(k) plan, account holders can invest as little or as much as they want and can pause or change their investments any time. Unlike other retirement options, invested assets are available for withdrawal before retirement for eligible health care expenses, without penalty or taxes.

One thing to keep in mind is that, although the money in the cash portion of the HSA is interest bearing and protected by the FDIC, HSA funds that are invested are not guaranteed and could lose value, like a 401(k), IRA and other retirement vehicles.

Financial advisors play a pivotal role in counseling clients about if, when, how and how much money to invest—and developing an appropriate HSA investment mix that’s aligned with their other retirement accounts and overall financial goals.

Because One Size Won’t Fit All

These days, the workforce includes five generations. And all this diversity makes it unlikely that one retirement solution will work for everyone. Yet, even with all the options available, more choice doesn’t always lead to better outcomes—especially when not everyone has the same options or even understands those they have. The retirement accounts people are likely to have or choose will depend on their employment status, medical plan participation, career phase, and personal financial circumstances and goals.

Here too, financial advisors can play a key role in both helping people understand the retirement options available to them and in maximizing the potential of each.


About UMB

UMB has developed an HSA solution that’s flexible enough to work for different recordkeepers and financial advisors. We offer everything from a turnkey, out-of-the-box solution with UMB’s exclusive investment platform—UMB HSA Saver®1—featuring hand-selected, diversified mutual fund lineup, to customized, modular solutions that can be fully integrated into your branded portal, featuring your investment mix.

*States can choose to follow the federal tax-treatment guidelines for HSAs or establish their own; some states tax HSA contributions. If you have questions about your tax implications, consult your tax advisor. Withdrawals for nonqualified medical expenses are subject to income taxes and a possible 20% penalty, if you’re under age 65.

1UMB Investment Management selects mutual funds in various asset classes for inclusion in the UMB HSA Saver Investment Program. UMB Investment Management is a department of UMB Bank, n.a. UMB Bank, n.a. is a wholly owned subsidiary of UMB Financial Corporation.