Mastering Health Savings Accounts: Advice for Henry Schein Professionals on Navigating Changes

The Internal Revenue Service (IRS) recently disclosed a substantial augmentation to the annual contributions Americans can allocate to their health savings accounts (HSAs). This enhancement, the most significant on record, is pertinent for the fiscal year 2024, setting the upper limit of HSA contributions at $8,300 for families and $4,150 for individuals. These figures represent a considerable rise from the previous thresholds of $7,750 and $3,850, respectively, for the year 2023.

Notably, participants who are 55 years of age or older are eligible to contribute an additional $1,000, making it feasible for an older married couple to reserve up to $10,300 annually in their HSAs. This adjustment could result in a potential accumulation of over $100,000 in these accounts during the decade preceding retirement.

Despite their advantages, HSAs remain both misconstrued and underutilized, as identified by the non-profit Employee Benefit Research Institute. Eligibility for contributions requires enrolment in an HSA-qualified high-deductible health plan and an absence of enrolment in Medicare. When utilized effectively, these accounts offer notable tax savings, more so than traditional or Roth retirement accounts. Contributions are made before tax, accrue interest tax-free, and withdrawals are untaxed when used for qualifying healthcare expenditures.

Such eligible medical expenses are extensive, encompassing Medicare Part B premiums (which are projected to approach $4,000 for a married couple with an income of up to $194,000 in 2023), deductibles, copayments, and expenses relating to vision, dental, hearing, and even long-term care. As the trend of employers providing retiree healthcare benefits continues to decline, the onus is increasingly on Henry Schein professionals to integrate these expenses into their retirement financial strategies.

Financial advisers highlight the necessity of robust planning for healthcare costs in Henry Schein retirement. According to the Employee Benefit Research Institute, a couple retiring this year would require an estimated $318,000 to have a 90% probability of covering healthcare expenses in retirement, assuming they are enrolled in a Medigap plan.

Furthermore, HSA holders can derive immediate tax benefits by depositing funds into the HSA and subsequently withdrawing them for healthcare costs. There’s also the advantage of being able to invest the funds for potential growth. Roy Ramthun, a key figure in the U.S. Treasury Department during the inception of HSAs in 2003, emphasizes their strategic use in retirement planning, focusing primarily on investment opportunities they present.

It's essential to note that HSA contribution limits are subject to annual inflation adjustments. Historically, these increases have ranged between $100 and $200. However, due to heightened inflation, the maximum contribution for families saw an unprecedented increase of $450 in 2023, followed by an additional $550 for 2024.

Statistical data from Devenir Research indicates that, as of the end of January, Americans had approximately $112.5 billion in roughly 37 million HSA accounts. This figure is particularly striking when considering that Americans annually expend nearly $400 billion on healthcare expenses using post-tax dollars, as reported by HSA provider Alegeus.

While most 401(k) plans default to investing in target-date funds, HSAs offer participants the discretion to invest, usually after their account exceeds a specific minimum balance, commonly around $1,000. This distinction became particularly salient for Sandeep Abrol, a recent Henry Schein retiree, who discovered that his $26,000 HSA contribution, accumulated over seven years, had yielded minimal returns in an interest-bearing checking account.

According to Devenir, the average total balance for an HSA holder investing their funds was $16,397 at the end of 2022, in stark contrast to a $2,445 average for those with non-invested deposit accounts.

HSAs also carry the benefit of permanence, in contrast to the commonly used health flexible spending accounts (FSAs), which typically allow limited rollovers from year to year. HSAs remain with the account holder regardless of changes in employment. As such, individuals switching jobs with substantial amounts in their HSAs need to be vigilant in managing these accounts. Strategies include using the funds in an older HSA while concurrently accruing savings in a new one, thereby optimizing the financial benefits these accounts offer.

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In the current economic climate, understanding and leveraging the potential of HSAs is increasingly critical for strategic retirement planning, especially considering the escalating healthcare costs anticipated during retirement.