Health savings accounts and 401(k) packages with generous matches are top employer benefits that can significantly impact workers’ finances. But many people overlook or fail to fully utilize these offerings, which can boost retirement savings or improve workers’ overall financial health, advisors say.
HSAs, savings accounts that allow individuals to save pre-tax money to cover medical expenses, can serve as a buffer for unexpected healthcare costs or planned procedures. However, many workers don’t realize that the money in these accounts can also be invested to serve individuals better in their retirement years, said David K. Morton III, CEO and wealth advisor at Heritage Financial.
Particularly for high earners, HSAs offer a great tax advantage for savings, Morton said.
“That can be a big untapped area to get your tax bill lower, and most people don’t understand that you don’t need to spend the money (in HSAs),” Morton said. “Sometimes there’s a disconnect between the health savings plans and the use-it-or-lose-it flexible savings plans.”
“The health savings account is super helpful for anyone, but especially for a highly compensated person,” Morton added.
“It’s a good option because you don’t have to spend it. You’re going to put it away. You’re not going to get taxed on it today, taxed on the growth, or taxed for withdrawing,” he explained, as long as distributions are for qualified medical expenses.
HSAs don’t have required minimum distributions either, like 401(k) plans or certain IRAs.
“We actually advise clients, don’t spend that money. Let it grow. Let’s get it invested inside the HSA. Use it in retirement. You can use it for Medicare premiums in the future,” Morton said.
Recent research from the Employee Benefit Research Institute found that HSA accounts that received an employer contribution had higher total contributions, and account holders were more likely to invest the funds.
The research, based on a review of 14 million HSAs in EBRI’s database, showed that the average distribution from these accounts in 2022 was $1,868.
“One of the largest advantages HSAs offer is the ability to invest assets within the account,” a March release for the EBRI findings said. “However, our analysis reveals that only 13% of account holders invested their HSAs in assets other than cash.”
“On average, older account holders contributed more to their HSAs, had higher balances, more frequently took distributions, and had a higher likelihood of investing at least some portion of their HSA in assets other than cash,” the release said.
Lindy Venustus, CEO and Founder of Create Financial Planning, also said that HSAs can be great for helping to reduce the out-of-pocket costs of a planned procedure.
“If you know you have something coming up, it’s a great way to use that savings,” Venustus said.
“If (individuals) are planning on starting a family and need some help, they can get medical help and tax help” through those savings accounts, she added.
“A lot of Americans are one injury or sickness away from bankruptcy. If you don’t have your emergency savings, you’re in trouble,” Venustus said. Venustus pointed to the financial buffer HSAs can provide to individuals.
401(k) Matching
While 401(k) plans are pretty standard offerings for full-time workers, Morton said that it’s surprising how many people don’t take advantage of 401(k) employer matches.
“Obviously, there’s the basic retirement 401(k) plan. You’ve gotta have that if you’re a company,” he said.
“But I think, really, the biggest component of that is the match, especially for younger workers that may need the incentive to save for retirement. We see the basic 3% matches, all the way up to 20%, and really generous benefits.”
Sometimes, it’s employers that fail to offer a match, which he sees as a missed opportunity for both parties.
“A lot of times (companies) will have a 401(k) plan and no match. I don’t understand how a company can have that, because it’s not much of a financial commitment (on their end). It’s not that often that I see it, but it does happen. It’s like they went through the trouble to set the thing up, and they don’t have a match. That isn’t very meaningful,” Morton said.
Younger workers are more apt to not take advantage of 401(k) matching. Either by not contributing enough to their retirement account to get the maximum match, or via low contributions that don’t trigger the match at all. Morton believes this is, in part, because younger individuals see their retirement years as “so far away.”
This comes as the country faces a retirement savings crisis, where even many older Americans have little to no funds for their future.
A new AARP survey found that 61% of adults who were 50 or older worried they wouldn’t have enough money for their retirement years, while 20% said they had no retirement savings.
Indira Venkateswaran, AARP Senior Vice President of Research, said, “Every adult in America deserves to retire with dignity and financial security. Yet far too many people lack access to retirement savings options. This, coupled with higher prices, is making it increasingly hard for people to choose when to retire. Everyday expenses continue to be the top barrier to saving more for retirement, and some older Americans say that they never expect to retire.”
Regarding top employer benefits, Venustus also pointed to provisions of the Secure Act 2.0. This allows employers to make matching retirement contributions for workers’ qualified student loan payments.
“They’ll put the company match toward your 401(k) when you’re paying your student loans,” Venustus said.
“That’s a way you could save money. If you are paying your student loans back, you can also get your 401(k) match,” without depleting all of your income, she explained.
Legal Services, Financial Advice
Advisors also mentioned employer benefits that can help individuals avoid or lower expenses related to financial planning needs.
Morton has seen some large companies offer a legal services benefit.
“I usually see people with that benefit who work at Fortune 500 companies. But it’s becoming more prevalent. And more employers are trying to implement it as part of their comprehensive benefit plan,” Morton said.
“Also, the cost of estate planning can vary widely based on geographic locations and other factors. I don’t advise (using this legal benefit) beyond those types of matters. But that is a great use that people don’t really think of,” he added.
A legal services benefit could particularly come in handy for someone with a family who hasn’t yet done their estate planning but wants legal input, Morton said.
Some firms are even offering their employees free consultations with financial advisors, according to Venustus.
“You can just set a time to meet with someone for a half hour. You can talk to them as many times as you want or just have your one-and-done consult,” Venustus explained. All of the meetings are covered by the employer, either at no cost or at a very low cost to employees.
“It’s access to a certified financial planner,” she said.
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