Inspira Financial Report Finds Over $1 Million Can Be Saved With a Health Savings Account

OAK BROOK, Ill., June 5, 2024 (Newswire.com) - Inspira Financial a leading provider of health, wealth, retirement, and benefits solutions, today released a report that finds individuals can save more than $1 million in their health savings account (HSA) over one’s career — and families can save twice as much.  

The report, “Using an HSA to save for health care in retirement," quantifies the savings accumulation, tax advantage, and interest growth potential of HSAs. Developed in collaboration with Employee Benefit Research Institute (EBRI), the report examines how effective HSAs can be in helping employees save for their medical expenses in retirement – independent of Medicare and employer retirement programs. 

“Employers have been cutting back on retirement benefits over the past few years as a cost-cutting measure, and Medicare does not fully cover one’s health care expenses in retirement,” said Bryan Levy, managing director of strategy for Inspira. “As a result, retirees increasingly assume the responsibility for their growing health care expenses as they age, often cutting into already inadequate retirement savings.” 

A key to potentially growing HSAs is investment. In many cases, HSA funds can be invested like 401(k)s and IRAs, rather than just functioning as a savings account. Assuming a 7.5% rate of investment return, that the IRS annual maximum contributions are made over 40 years, distributions are never taken, and $1,000 catch-up contributions are made each year between the ages of 55 and 64, individuals would enter retirement with an HSA balance of $1.03 million. Under similar assumptions, the potential balance among individuals with family coverage can reach $2.06 million, due to higher contribution limits.  

“HSA owners must weigh the trade-off between paying for medical expenses out-of-pocket to maximize their HSA balance for the future versus using their HSA for current medical expenses,” said Paul Fronstin, Ph.D., director, health benefits research, EBRI. “The tradeoff might be worth it for someone who can use cash and keep their HSA savings invested and protected with generous tax advantages.” 

HSAs offer a triple tax advantage – contributions are tax-deductible, earnings grow tax-free, and withdrawals are tax-free when used for qualified health care expenses.  

“This type of account not only promotes fiscal responsibility but also encourages employees to take an active role in managing their health care costs and can ultimately help them plan for their retirement as well," Levy said.  

According to the report, tax savings from interest and capital gains for combined federal income and payroll tax exclusions (assuming a 7.5% rate of return over 40 years) is $253,000 for lower-income workers and $217,000 for higher-income workers, which is about 4-5 times higher than the tax savings procured exclusively from contributions. However, only 20% of accountholders use their HSA to their advantage in this way. 

“Most employees begin thinking about their health care needs too late, instead of beginning their contributions early enough to allow them to compound,” Levy said. “Not everyone will be able to make maximum contributions for their entire working life, but an increased focus on better incorporating HSAs into broader retirement planning is key. It can better position accountholders for unexpected major health expenses and prepare them to cover sizeable health care expenses in retirement.” 

Read the full report here. 

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About Inspira Financial  
Inspira Financial provides health, wealth, retirement, and benefits solutions that strengthen and simplify the health and wealth journey. With more than 7 million account holders holding over $62 billion in assets under custody, Inspira works with thousands of employers, plan sponsors, recordkeepers, TPAs, and other institutional partners — helping the people they care about plan, save, and invest for a brighter future. Inspira relentlessly pursues better outcomes for all with our automatic rollover services, health savings accounts, emergency savings funds, custody services, and more. Learn more at inspirafinancial.com.