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Having An HSA Option For Employees Drives More 401(k) Savings

You might think contributing to an HSA would lead to smaller contributions to other savings accounts, but a recent Alight study found that isn’t the case. After analyzing over a million employees, they found that people who contributed to both HSAs and 401(k)s put more into their 401(k)s than people who only contributed to their 401(k)s.

The study found that, for people in HSA-eligible health plans, the ones who contributed to both HSAs and 401(k)s put an average of 2.9% of their pay in their HSAs and 8.9% in their 401(k)s (a total of 11.8%). However, people who just contributed to their 401(k)s only put 6.8% of their pay in their accounts. This trend of higher 401(k) contributions for employees with HSA and 401(k) options held steady across different pay ranges.

Perhaps the people who contributed to both their HSAs and 401(k)s better understand the value of a comprehensive retirement strategy that includes investing HSAs funds to pay for retirement medical expenses tax-free. In any case, having an HSA option and communicating its value as an investment vehicle may help boost employees’ overall savings.

If you’d like to know more about an HSA solution for your company, we can help. Learn about enrolling your group here.

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Comparing HSAs to 401(k)s and IRAs

Here’s how HSAs stack up with two other popular retirement investment vehicles, 401(k)s and IRAs:

 HSA401(k)IRA
Do you have to pay federal tax on contributions?NoNoNo
Do you have to pay state tax on contributions?No, unless you live in CA or NJNoNo
Do you have to pay FICA on contributions?No, if you contribute via pre-tax payroll withholding (via a Cafeteria Plan) YesYes
Do contributions grow tax-free?Yes, unless you live in CA, NH*, NJ, or TN*YesYes
Are you taxed on withdrawal for non-medical costs?YesYesYes
Are you taxed on withdrawal for medical costs?NoYesYes
Is there a required minimum distribution?NoYesYes

Ready to open up an HSA? Get started here.
*New Hampshire and Tennessee only tax dividend and interest earnings after a certain dollar amount, depending on whether you’re filing individually or married filing jointly. That dollar amount is the limit for all of that year’s dividend and interest earnings, not just what came from your HSA.

In New Hampshire, residents must only file dividend and earnings income tax returns if they collect dividend and interest income for that year totaling more than $2,400 (if filing individually) or $4,800 (if married filing jointly).

In Tennessee, residents must only file dividend and earnings income tax returns if they collect dividend and interest income for that year totaling more than $1,250 (if filing individually) or $2,500 (if married filing jointly).

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The IRS has extended the tax deadline from April 15th to July 15th. Individuals may continue to make 2019 HSA contributions until 11:59 p.m. EST on July 15, 2020. Read more Covid-19 updates >>