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How Millennials Can Start Saving for the Future with HSAs

How Millennials Can Start Saving for the Future with HSAs

Posted Dec 04, 2015 by Jenifer Dorsey

Are health savings accounts worthwhile for millennials?

HSAs can be a smart investment at any age. And, more and more Americans are setting them up. Enrollment in HSA-eligible high deductible health plans increased 13 percent from 2014.[1]

“HSA adoption is at its highest level ever,” says Dave Keller, Chief Sales and Marketing Officer for IHC Specialty Benefits. “As high deductible health insurance plans become more common, there are advantages for people at all stages of life—from millennials who are just starting to baby boomers who are entering retirement—and people are starting to embrace those advantages.”

What exactly are these HSA advantages? Namely, tax benefits that help lower overall healthcare costs, retirement savings potential, flexibility of use, and portability.[2]

Here are some key reasons young adults of the millennial generation might consider funding an HSA today: 

1. You can use funds to pay for qualified medical expenses.

The money you place in your HSA can be used to pay for qualified medical expenses as you need—visit IRS.gov for a list—and there’s no waiting period to withdraw your funds. Maybe money is a little tight one month or you wind up in between jobs and need help paying for healthcare—your HSA savings can come in handy.

Plus, your HSA can help lower your total out-of-pocket spending for qualified medical expenses because the funds have several tax benefits[3]:

  • You can deposit pre-tax dollars through payroll deductions—or, if you place money in your account after being taxed on it, you can deduct contributions at tax time.
  • You do pay taxes on interest your HSA funds earn.
  • The withdrawals you make for qualified medical expenses are tax-free.

2. Save funds for future healthcare costs while earning interest on them.

Unused HSA funds roll over from year to year—and interest is compounded. So, in a way, your HSA grows into adulthood with you.

Maybe you have few healthcare needs right now, but if you experience an unexpected illness or injury you haven’t budgeted for or decide to start a family, you can use the funds you’ve saved to help pay those relatively large medical expenses as well as the smaller ones.

3. There is no minimum contribution amount.

You are not committed to specific monthly or annual contributions to your HSA. That means you can deposit money into your account when it’s convenient—the amount and frequency are up to you. Plus, anyone can contribute to the HSA—your employer, your parents, your spouse, your incredibly generous friend … anyone.

There is, however, a limit on how much money you can put in your HSA each year. For 2016, the annual maximum contribution limit is[4]:

  • $3,350 for an individual
  • $6,750 for a family

These amounts are updated annually by the IRS.

4. An HSA is yours to keep throughout your lifetime, even if you change jobs.

Millennials tend to switch jobs more frequently than the generations before them.[5] Data from the Bureau of Labor Statistics shows that the average worker stays at a job for 4.4 years, and Forbes reported that younger employees stay about half that time.[6]

While you may not be able to take your health insurance plan with you, your HSA is yours to keep no matter what—whether you switch employers, leave the workforce or become self-employed. The one thing you should keep in mind is that you can only continue making contributions if the account is tied to an HSA-eligible high deductible health plan. If you cease to have an HSA-eligible HDHP, you can, however, continue to withdraw funds for qualified medical expenses until the balance is zero.

5. An HSA is another way to save for retirement.

Retirement can seem like a ways off when you are in your twenties and thirties, but squirreling away for it throughout your lifetime can be smart. While other expenses may decrease when you leave the workforce, healthcare spending consistently fails to decline, according to an Employee Benefit Research Institute analysis.[7] The average annual out-of-pocket healthcare costs for households between 65 and 74 years old is $4,838—11 percent of total household spending.

You can use your HSA to save for healthcare costs in retirement. You can also withdraw the money for non-medical expenses once you turn age 65; however, it is important to note that you will be taxed on funds used for non-medical purposes.

These are just a few of the reasons millennials shopping for health insurance might consider an HSA-qualified high deductible health insurance plan paired with an HSA. For additional guidance and information, consult a health insurance producer or a financial adviser.

Finally, when looking for HSA-eligible health insurance coverage, keep in mind that the eligible deductible amount adjusts annually. For 2016, the IRS considers high deductible health plans to be those with a minimum deductible of $1,300 for individuals and $2,600 for families.[8] High deductible health insurance plans are available on and away from the state-based and federally facilitated health insurance exchanges, but make sure the plan you’ve selected is HSA-eligible; if you are not sure, ask prior to enrollment.

 


[1] Mayer, Kathryn. “HSA Enrollment Jumps.” BenefitsPro. Nov. 18, 2015. http://www.benefitspro.com/2015/11/18/hsa-enrollment-jumps

[2] Healthedeals.com. “Ask an Expert: Frequently Asked Questions About Health Savings Accounts.” http://www.healthedeals.com/articles/frequently-asked-questions-about-health-savings-accounts

[3] Statler, Kate. “The Triple Tax Benefit of Health Savings Accounts.” U.S. News & World Report. May 18, 2015. http://money.usnews.com/money/personal-finance/mutual-funds/articles/2015/05/18/the-triple-tax-benefit-of-health-savings-accounts

[4] Internal Revenue Service. 26 CFR 601.602: Tax forms and instructions. Rev. Proc. 2015-30. https://www.irs.gov/pub/irs-drop/rp-15-30.pdf

[5] Meister, Jeanne. “Job Hopping is the ‘New Normal’ for Millennials: Three Ways to Prevent a Human Resources Nightmare.” Forbes. Aug. 14, 2012. http://www.forbes.com/sites/jeannemeister/2012/08/14/job-hopping-is-the-new-normal-for-millennials-three-ways-to-prevent-a-human-resource-nightmare/

[6] Ibid.

[7] McWhinnie, Eric. “How Much Will Health Care Cost in Retirement?” USA Today. March 14, 2015. http://www.usatoday.com/story/money/personalfinance/2015/03/14/cheat-sheet-health-care-costs-retirement/70211418/

[8] Internal Revenue Service. 26 CFR 601.602: Tax forms and instructions. Rev. Proc. 2015-30. https://www.irs.gov/pub/irs-drop/rp-15-30.pdf

This document is for general informational purposes only. While we have attempted to provide current and accurate information, this information is provided "as is" and we makes no representations or warranties regarding its accuracy or completeness. The information provided should not be construed as legal or tax advice or as a recommendation of any kind. External users should seek professional advice from their own attorneys and tax and benefit plan advisers with respect to their individual circumstances and needs.

About The IHC Group
The IHC Group is an organization of insurance carriers and marketing and administrative affiliates that has been providing life, health, disability, medical stop-loss and specialty insurance solutions to groups and individuals for over30 years. Members of The IHC Group include Independence Holding Company (NYSE:IHC), American IndependenceCorp. (NASDAQ: AMIC), Standard Security Life Insurance Company of New York, Madison National Life Insurance Company, Inc. and Independence American Insurance Company. Each insurance carrier in The IHC Group has a financial strength rating of A- (Excellent) from A.M. Best Company, Inc., a widely recognized rating agency that rates insurance companies on their relative financial strength and ability to meet policyholder obligations. (An A++ rating from A.M. Best is its highest rating.) Collectively, the companies in The IHC Group provide insurance coverage to more than one million individuals and groups. For more information about The IHC Group, visit www.ihcgroup.com.

About IHC Specialty Benefits, Inc.
IHC Specialty Benefits, doing business as Health eDeals Insurance Solutions is a full-service marketing and distribution company that focuses on small employer, individual and consumer products. Health eDeals markets products through general agents online, telebrokerage, advisor centers, private label and directly to consumers. For more information about Health eDeals visit www.HealtheDeals.com.