Overlooked No More: 7 Ways This Account Could Supercharge Retirement Readiness

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While many tax-advantaged investment vehicles are relevant for financial planners working with clients focused on saving for retirement, only one confers a so-called “triple tax advantage.” That is the humble health savings account.

HSAs are the only investment account type funded with pretax dollars while also enjoying tax-free growth and tax-free spending from the account (on qualifying medical care).

Despite this powerful advantage, many financial planners tend to overlook HSAs, in no small part because advisors’ clients tend to be wealthier than the general population. This means they are less likely to be using a high-deductible health plan, which is a requirement when opening and funding an HSA.

Another limiting factor has been HSA owners’ reluctance to invest their savings, but the world of health care insurance is rapidly changing, as are consumer preferences across the wealth spectrum. Some experts say such developments suggest that the role of HSAs is likely to expand significantly — potentially even mimicking the runaway success of the 401(k).

According to a new Fast Facts analysis published by the Employee Benefit Research Institute based on research it conducted in partnership with TIAA, this would be a good thing for overall retirement readiness in the United States. Consumer adoption of HSAs is directly associated with greater retirement preparedness, the analysis found, especially when HSA assets are invested over the long term.

See the accompanying slideshow for some highlights from the firms’ research and prior ThinkAdvisor reporting that underscore HSAs’ big potential. Given that open enrollment seasons are fast drawing to a close, advisors may find the information particularly handy as they check in with clients in early 2024.

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