401(k) Specialist Issue 2 - 2019 - 34

H
This demonstrates most people are still
using their HSA primarily to pay for outof-pocket
medical costs, and still missing
out on an HSA's best feature: its unique triple
tax advantage that makes it a formidable
retirement savings vehicle.
Contributions to an HSA are made pretax
or are tax-deductible. Earnings and interest
accumulate tax-free, and withdrawals
for qualified medical expenses are tax-free.
The funds in the account roll over year to
year, allowing growth over time. No other
financial product (not even a 401(k)!) can
do this, and it's why more and more 401(k)
advisors-not to mention plan sponsors and
record keepers-are singing their praises in
an ever-louder chorus.
In fact, a handful of large record keepers
have rolled out the availability of HSA
plans for their 401(k) plan clients within the
past couple of years, including Empower
Retirement, Fidelity Investments, and most
recently Vanguard, which added HSAs in
November 2018 through a partnership with
leading HSA provider HealthEquity.
Will contribution limits be expanded?
HSAs have been around since 2004, but
the Employee Benefit Research Institute
(EBRI) reports that more than three-quar34
ISSUE
2 2019 | 401kSpecialist.com
Health Savings Accounts grew to an estimated
$51.4 billion in assets across more than 23 million
accounts halfway through 2018, according to
Minneapolis-based HSA research firm Devenir
Group. By the end of 2020, Devenir projects the
HSA market will approach $75 billion in assets
covering more than 29 million accounts.
Nothing to sneeze at to be sure. But the same
mid-2018 report also found most people who do
have HSAs aren't taking advantage of the account's
huge tax advantages and long-term benefits.
Through the first half of 2018, Devenir found
HSA contributions totaled about $19.8 million,
while withdrawals totaled over $13.7 million.
ters of HSA accounts have been started
since 2014. The growth is happening, but
what is keeping HSAs from really taking off
as the investment and retirement savings
tool they have the potential to be? Consumer
awareness for one, and low annual
contribution limits are another hurdle.
We'll look at how 401(k) advisors can step
up their HSA game in a minute, but first let's
look into the contribution limits issue.
You may remember that the U.S. House
of Representatives passed a pair of bills in
July 2018 that would have practically doubled
the annual limits on contributions to
HSAs for those with employee-only health
coverage from $3,450 to $6,550-and from
$6,900 to $13,300 for those with family
coverage.
But the bills died in the Senate, facing
significant Democratic opposition because
they were perceived as another effort to
undermine the Affordable Care Act while
allowing the wealthy another option to stash
tax-free money, according to ranking member
of the House Ways and Means Committee
Rep. Richard Neal (D-Mass.).
That has left Americans with still-modest
maximum annual HSA contribution
limits (employer plus employee) for 2019
of $3,500 per individual and $7,000 for a
family. An additional $1,000 in catch-up
contributions is permitted for those age 55
and older.
Roy Ramthun, president and founder of
HSA Consulting Services and also known as
" Mr. HSA, " is projecting that contribution
limits will once again see modest increases
for 2020. Ramthun expects an individual
limit of $3,550 and a family limit of
$7,100-just $50 and $100 more than 2019.
It remains to be seen whether further
legislation will be introduced during 2019's
116th Congressional session to increase
the amount of allowable contributions and
make usage more flexible. The Senate remains
in Republican control with 53 seats,
but Republicans still face the challenge of
attracting seven Democrats (or independents
who caucus as Democrats) to bring the
bill to the floor for a vote if the Democrats
threaten a filibuster.
If Democrats stick to HSA expansion
efforts as being attempts to undermine
the ACA, any prospective bills introduced
this year probably won't pass. But if HSA
expansion supporters are able to overcome
that argument, the likelihood of such a bill
becoming law increases dramatically. If that
were to happen, as most advisors would
like to see, HSA plans could truly turn into
robust retirement savings vehicles.
But would a dramatic increase (potentially
double) in limits really prompt significant
additional funding into HSA accounts?
Using data from its HSA Database,
EBRI found that while half of HSA owners
contributed to their account in 2017, only
13 percent of account owners contributed
the maximum.
Still, EBRI finds longer-tenured account
holders tended to contribute more, and the
longer they have an HSA, the more likely
they are to contribute the maximum to it.
" The rise of HSAs is an encouraging sign
for future financial wellness for individuals
who have and contribute to HSAs, " says
Paul Fronstin, Ph.D., director of the health
research and education program at EBRI.
" Over time, balances increase, contributions
increase, and the percentage of accounts
investing rises. "
Fronstin says plan sponsors and administrators
will need to support and educate
account holders about tactics for self-fund
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401(k) Specialist Issue 2 - 2019

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