Higher health savings account (HSA) contribution limits can have a number of positive implications for both employers and employees. Healthcare costs, along with the cost of nearly everything else, have continued to rise, so these new limits should be a welcome relief to individuals and families.
For Employees
Employees are wise to contribute as much as they can to their HSA. Simply put, every dollar placed in an HSA is worth up to 30 percent more, thanks to the account’s triple-tax advantage. Higher contribution limits allow employees to accumulate a larger balance, which can provide a financial safety net for medical expenses in the near and long term.
As a savings vehicle, HSAs offer greater tax benefits than any other type of retirement account, including a 401(k), so the opportunity to contribute more pretax dollars into savings is a positive for consumers. And with an HSA’s investment capabilities, those dollars have the potential to grow even faster.
Healthcare costs are one of consumers’ biggest concerns when it comes to retirement planning. It’s estimated that the average opposite-gendered couple retiring today at age 65 will need more than $300,000 to cover their healthcare expenses in retirement. Anything that supports saving for these costs is a win.
For Employers
Contributing more toward employees’ HSAs can enhance an employer’s overall benefits package and help them attract and retain talent. In today’s insecure job market, this kind of differentiator is essential. The new higher limits open up greater potential to demonstrate support for employees’ whole health through higher contributions, as well as education about the HSA’s advantages.
In addition, employer contributions to HSAs are generally tax-deductible, so higher contribution limits can potentially reduce an employer’s tax liability and serve as a valuable tax-planning tool. Of course, we always advise employers, as well as employees, to consult with their benefits administrator or financial professional to help determine the best contribution plan for their situation.
Sandy Gleason is a benefits subject matter expert at Alegeus.