The Wall Street Journal - 08.11.2019

THE WALL STREET JOURNAL. Friday, November 8, 2019 |B5

you’re taking advantage of it,

you’ll be benefiting from both

savings plans.

The HSA contribution limits

for 2020 are $3,550 for an in-

dividual with a high deductible

health plan and $7,100 for an

individual with family cover-

age. The catch-up contribution

amount for those 55 years old

or above is an additional

$1,000. The amount contrib-

uted to an HSA doesn’t affect

the contribution limits for

401(k) plans or IRAs, which

are $19,500 and $6,000 re-

spectively for 2020.

One approach to the HSA is

to consider paying for current

medical expenses out-of-

pocket after establishing the

HSA; you can then file for re-

imbursement in retirement.

This way, you can supplement

your retirement income—en-

tirely tax-free.

If you’re taking this ap-

proach, you should invest your

HSA balance in a diversified

portfolio, so you can maximize

its potential return. According

to 2019 data from Ascensus,

less than a third of HSA ac-

count holders eligible to invest

their funds actually did so.

Meanwhile, keep track of

the medical expenses you pay

out of pocket. Keeping these

receipts on hand means you

can then file during retirement

to have them reimbursed. But

remember: You have to keep

the receipts from any medical

expenses you paid for out-of-

pocket before retirement, just

in case the IRS ever comes

knocking for an audit.

An HSA can also be consid-

ered as a “rainy day” medical

fund that works in tandem

with your 401(k) to help offset

the cost of out-of-network

care, over-the-counter medi-

cines or other things your in-

surance may not cover. Even if

you’re healthy now, studies

show you could still be spend-

ing much more on medical ex-

penses once you enter retire-

ment.

Remember: You can’t keep

contributing to your HSA once

you’re enrolled in Medicare.

So maximizing contributions

now will allow the miracle of

compounding to work, grow-

ing that money in your HSA

over time.

“Everything about retire-

ment planning says, ‘Start

young, be regular and invest,’”

Mr. Ramthun said. “That’s

what we want people to hear

about HSAs.”

HSAs can be considered a ‘rainy day’ fund that works in tandem with a 401(k) to offset the cost of things not covered by insurance.

PAT GREENHOUSE/THE BOSTON GLOBE/GETTY IMAGES

June 2019

26.3M

June 2011

6.3 million

The number of health savings accounts has quadrupled since

2011, with more contributions flowing in every year.

Number of accounts

*Estimate

Assets

$60

0

20

40

billion

2006 ’10 ’15 ’19*

Cash

Investments

Source: Devenir Group

PERSONAL FINANCE

fore retirement, which can’t be

done with a 401(k) or an indi-

vidual retirement account.

Eric Remjeske, president of

Devenir Group LLC, said since

Congress authorized these ac-

counts in 2003, the number of

accounts and the average ac-

count balance have both

grown over time. By 2011,

there were 6.2 million HSAs,

according to Devenir Research;

this past June, that number

had grown to 26.3 million.

More money is flowing into

HSAs every year. Devenir Re-

search data show that $43.5

billion was deposited in HSAs

in 2018, with $10.2 billion in-

vested, a sharp increase from

the year before when $31.5 bil-

lion was deposited and $5.5

billion invested. By 2021, Deve-

nir estimates that number will

rise to $67 billion deposited

with $21.2 billion invested.

While the 401(k) remains

the predominant retirement

savings vehicle, Mr. Ramthun

recommends contributing to

both a 401(k) and HSA, espe-

cially if your employer offers a

match for either.

“Advisers are now asking

the question: Where do you

put the money, 401(k) or

HSA?” said Steve Christenson,

executive vice president at As-

census, a retirement and col-

lege savings service provider.

“They’re seeing more of a bal-

ance amongst consumers.”

To make the most of both,

research if your employer of-

fers matches. If your employer

also offers an HSA match, Mr.

Ramthun recommends priori-

tizing that contribution, as

you’ll eventually be able to

reap greater benefits from the

HSA’s triple tax advantages.

From there, contribute to your

401(k), and if your employer

also offers a match there and

The health savings account,
or HSA, can be a powerful sav-
ings tool—if you approach it
the right way.
These accounts, which Con-
gress authorized in 2003, are
more than just a simple sav-
ings tool for medical emergen-
cies. Retirement planners laud
the HSA’s triple tax advantage
and its use as
a complemen-
tary savings
vehicle to 401(k) plans.
Oftentimes when people
first hear of HSAs, it is during
this time of year. For compa-
nies with policies that start in
January, open enrollment typi-
cally happens in the fall. Dur-
ing this period, many employ-
ees are stressed about
choosing and selecting other
benefits.
“I don’t think most people
understand HSAs,” said Roy
Ramthun, a consultant who
specializes in HSAs. “From my
experience, the HSA gets 30
seconds of the health benefit
presentation. It’s all about the
insurance, and then ‘Oh, you
have this.’”
HSAs are unique in the tri-
ple tax advantage they offer: If
you opt for a high deductible
health plan, you can contrib-
ute to an HSA by setting aside
pretax earnings without pay-
ing federal or state income
tax. From there, that money
can be invested and grows tax-
free. Additionally, if used for
medical expenses, this money
can be withdrawn tax-free be-

BYJULIACARPENTER

HSAs Can

Complement

401(k) Plans

The accounts are

more than a tool for

paying for medical

expenses

RETIREMENT

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