In This Time of Uncertainty, Health Savings Accounts (HSAs) Benefit Your Clients More Than Ever

Months after the initial outbreak, the COVID-19 pandemic continues to have a significant impact on millions of Americans. Job losses, hospitalizations, and fears of new outbreaks have left many Americans searching for a way to regain financial stability and peace of mind.

In these uncertain times, health savings accounts, or HSAs, have emerged as a powerful way to aid Americans who might be struggling with health or financial wellness challenges. Tax accountants and other advisors have a real opportunity to help clients rebuild a firm financial foundation by encouraging them to open and fund HSAs.

As a reminder, health savings accounts offer a triple tax advantage:

• Contributions to a health savings account can be taken as a payroll deduction or as an itemized deduction.
• Earnings or dividends from investments or interest from cash balances are tax-deferred.
• Withdrawals from a health savings account are tax-free as long as they are used for qualified medical expenses for the account holder, their spouse, and any tax dependents.

What’s more, the balance in a health savings account can roll over from year to year with no use-it-or-lose-it restrictions. There is no cap on how much can be accumulated in a health savings account, and there are no required minimum distributions down the road.

HSAs also shine as a long-term savings vehicle. They can be invested like a 401(k) to grow medical nest eggs to cover medical costs in retirement. Rather than using taxable dollars from another retirement account to pay for their retirement healthcare expenses, savvy investors can save significant money by using tax-free HSA funds. And once account holders turn 65, they can use HSA funds on non-medical costs with no tax penalty; those distributions are treated like a traditional 401(k).

An important consideration in choosing the right HSA for retirement planners is to choose an HSA that offers investors access to low-expense mutual funds with no hidden fees and without a minimum cash requirement. HealthSavings empowers its account holders to invest all their health benefit dollars in institutional-class funds so they can grow their savings tax-free and meet their financial goals. By choosing from a carefully curated selection of funds with lower expense ratios and no trading fees, HealthSavings account holders have historically saved five times more than the industry average.

The COVID-19 pandemic has afforded tax advisors a powerful chance to provide stability and hope in a time of crisis. And now more than ever, HSAs shine as a flexible, robust tool to help account holders save money now and prepare for the future. By encouraging their clients to open and utilize HSAs, tax advisors can help them build a happy, healthy future for themselves, their families, and their employees.