Planning for the future
Gary Allerheiligen says he's switching to a health insurance plan that will require a higher-deductible and a health savings account.
Allerheiligen, the partner in charge of Grant Thornton LLP's Wichita office, isn't switching just because he can reduce his monthly health insurance premiums. He says he's making the move to build up his retirement savings.
"Absolutely I am," he says. "It grows like an IRA (individual retirement account)."
Allerheiligen is among a group of people who see HSAs as a way to supplement their retirement. They may have maximized their contributions to their 401(k)s and IRAs and are looking for a place to grow pretax income. Or, like Allerheiligen, they are looking for a place to put their pre-tax income that they can use to pay for health care and roll over unused balances year to year.
As more insurers and banks come to the table offering high-deductible health insurance plans and HSAs, financial planners expect their popularity as a retirement tool to grow. And they're telling their colleagues to get ready to make HSAs as much a part of the financial planning discussion with clients as mutual funds and 401(k)s.
Rolling balances
HSAs are intended to do two things: lower the premiums that employers pay for their employees' health insurance plans and make employees more accountable for their health care spending.
The Medicare Modernization Act of 2003 permitted the creation of the private, tax-free accounts to be used in conjunction with high-deductible health plans.
The minimum deductible for a high deductible plan in 2006 will be $1,050 for an individual and $2,100 for a family.
HSAs matched to those high deductible plans allow employees and employers to contribute pretax dollars into the tax-deferred accounts. They can be used to pay for doctor's office visits, prescription drugs and other medical expenses.
For 2006, the maximum contributions to an HSA are $5,250 for an individual and $10,500 for a family.
HSAs are attractive to people like Allerheiligen because the balances that remain in an HSA roll over from year to year.
And at age 65, the account can continue to be used for medical expenses or withdrawn for other purposes.
Use the money for something other than medical expenses after 65 and you'll have to pay income tax on that amount. Use that money for non-health related expenses before 65 and you'll pay income tax and a 10 percent penalty.
Financial planner Don Baxter says that money, once withdrawn, could easily be put to use in other short-term investments such as certificates of deposit.
Allerheiligen, the partner in charge of Grant Thornton LLP's Wichita office, isn't switching just because he can reduce his monthly health insurance premiums. He says he's making the move to build up his retirement savings.
"Absolutely I am," he says. "It grows like an IRA (individual retirement account)."
Allerheiligen is among a group of people who see HSAs as a way to supplement their retirement. They may have maximized their contributions to their 401(k)s and IRAs and are looking for a place to grow pretax income. Or, like Allerheiligen, they are looking for a place to put their pre-tax income that they can use to pay for health care and roll over unused balances year to year.
As more insurers and banks come to the table offering high-deductible health insurance plans and HSAs, financial planners expect their popularity as a retirement tool to grow. And they're telling their colleagues to get ready to make HSAs as much a part of the financial planning discussion with clients as mutual funds and 401(k)s.
Rolling balances
HSAs are intended to do two things: lower the premiums that employers pay for their employees' health insurance plans and make employees more accountable for their health care spending.
The Medicare Modernization Act of 2003 permitted the creation of the private, tax-free accounts to be used in conjunction with high-deductible health plans.
The minimum deductible for a high deductible plan in 2006 will be $1,050 for an individual and $2,100 for a family.
HSAs matched to those high deductible plans allow employees and employers to contribute pretax dollars into the tax-deferred accounts. They can be used to pay for doctor's office visits, prescription drugs and other medical expenses.
For 2006, the maximum contributions to an HSA are $5,250 for an individual and $10,500 for a family.
HSAs are attractive to people like Allerheiligen because the balances that remain in an HSA roll over from year to year.
And at age 65, the account can continue to be used for medical expenses or withdrawn for other purposes.
Use the money for something other than medical expenses after 65 and you'll have to pay income tax on that amount. Use that money for non-health related expenses before 65 and you'll pay income tax and a 10 percent penalty.
Financial planner Don Baxter says that money, once withdrawn, could easily be put to use in other short-term investments such as certificates of deposit.
Allerheiligen, the partner in charge of Grant Thornton LLP's Wichita office, isn't switching just because he can reduce his monthly health insurance premiums. He says he's making the move to build up his retirement savings.
"Absolutely I am," he says. "It grows like an IRA (individual retirement account)."
Allerheiligen is among a group of people who see HSAs as a way to supplement their retirement. They may have maximized their contributions to their 401(k)s and IRAs and are looking for a place to grow pretax income. Or, like Allerheiligen, they are looking for a place to put their pre-tax income that they can use to pay for health care and roll over unused balances year to year.
As more insurers and banks come to the table offering high-deductible health insurance plans and HSAs, financial planners expect their popularity as a retirement tool to grow. And they're telling their colleagues to get ready to make HSAs as much a part of the financial planning discussion with clients as mutual funds and 401(k)s.
Rolling balances
HSAs are intended to do two things: lower the premiums that employers pay for their employees' health insurance plans and make employees more accountable for their health care spending.
The Medicare Modernization Act of 2003 permitted the creation of the private, tax-free accounts to be used in conjunction with high-deductible health plans.
The minimum deductible for a high deductible plan in 2006 will be $1,050 for an individual and $2,100 for a family.
HSAs matched to those high deductible plans allow employees and employers to contribute pretax dollars into the tax-deferred accounts. They can be used to pay for doctor's office visits, prescription drugs and other medical expenses.
For 2006, the maximum contributions to an HSA are $5,250 for an individual and $10,500 for a family.
HSAs are attractive to people like Allerheiligen because the balances that remain in an HSA roll over from year to year.
And at age 65, the account can continue to be used for medical expenses or withdrawn for other purposes.
Use the money for something other than medical expenses after 65 and you'll have to pay income tax on that amount. Use that money for non-health related expenses before 65 and you'll pay income tax and a 10 percent penalty.
Financial planner Don Baxter says that money, once withdrawn, could easily be put to use in other short-term investments such as certificates of deposit.
Allerheiligen, the partner in charge of Grant Thornton LLP's Wichita office, isn't switching just because he can reduce his monthly health insurance premiums. He says he's making the move to build up his retirement savings.
"Absolutely I am," he says. "It grows like an IRA (individual retirement account)."
Allerheiligen is among a group of people who see HSAs as a way to supplement their retirement. They may have maximized their contributions to their 401(k)s and IRAs and are looking for a place to grow pretax income. Or, like Allerheiligen, they are looking for a place to put their pre-tax income that they can use to pay for health care and roll over unused balances year to year.
As more insurers and banks come to the table offering high-deductible health insurance plans and HSAs, financial planners expect their popularity as a retirement tool to grow. And they're telling their colleagues to get ready to make HSAs as much a part of the financial planning discussion with clients as mutual funds and 401(k)s.
Rolling balances
HSAs are intended to do two things: lower the premiums that employers pay for their employees' health insurance plans and make employees more accountable for their health care spending.
The Medicare Modernization Act of 2003 permitted the creation of the private, tax-free accounts to be used in conjunction with high-deductible health plans.
The minimum deductible for a high deductible plan in 2006 will be $1,050 for an individual and $2,100 for a family.
HSAs matched to those high deductible plans allow employees and employers to contribute pretax dollars into the tax-deferred accounts. They can be used to pay for doctor's office visits, prescription drugs and other medical expenses.
For 2006, the maximum contributions to an HSA are $5,250 for an individual and $10,500 for a family.
HSAs are attractive to people like Allerheiligen because the balances that remain in an HSA roll over from year to year.
And at age 65, the account can continue to be used for medical expenses or withdrawn for other purposes.
Use the money for something other than medical expenses after 65 and you'll have to pay income tax on that amount. Use that money for non-health related expenses before 65 and you'll pay income tax and a 10 percent penalty.
Financial planner Don Baxter says that money, once withdrawn, could easily be put to use in other short-term investments such as certificates of deposit.
Baxter, president of Baxter & Associates Inc, says while it's all well and good that someone goes into an HSA with the view that its for retirement, a person's health could change quickly and that retirement coffer could dwindle in the face of a big illness.
That's why Baxter says an HSA should be used as an additional source, not a primary source, of retirement income.
Baxter says he's got one client who has signed up for an HSA and he's starting to encourage other clients to look at them for financial planning purposes. "It really could work for anybody if they have the flexibility to choose that plan," Baxter says.
Richard Stumpf, president and owner of Financial Benefits Inc., says he has three clients who have signed up for HSAs and he expects to sign up more.
Stumpf and Baxter say besides an IRA, which can't be used to pay for medical expenses, there's nothing close to an HSA.
"The people that are doing it are already maxing out on what they can contribute to their retirement plans," Stumpf says. "This is additional money (they can invest)."
How much money can be built up in an HSA? Take an individual who annually contributes the maximum allowable $5,250 to an HSA. Even if that person pays out their annual health insurance deductible of $1,050, in 10 years he or she could have $42,000 pretax dollars stashed away.
And that doesn't include any interest they'd gain from those accounts. Those interest rates vary by bank.
Jane Deterding, executive vice president and general counsel at Citizens Bank of Kansas, says her bank's HSA has an interest rate of 0.65 percent.
At Intrust Bank, vice president of business development Bob Harbison says HSA rates vary between 1.5 percent and 3.75 percent. The rates increase as the account balance rises.
'Substantial asset'
Financial Planning Association members are being told to get up to speed on HSAs because more people are expected to use them as a retirement tool.
In a June FPA Journal article, author Edward Dee Hinds III says HSAs have the "long-term potential to become a substantial asset for a client" because the unused balance rolls over and earns interest.
Local employers say the HSA-as-retirement fund is getting more popular.
Gary Proffitt, senior vice president of human resources at Intrust Bank, says he knows of three of the bank's 1,000 employees who chose a high-deductible plan and HSA this year -- the first year Intrust has offered such a plan -- because they wanted to build their retirement.
He doesn't know how many more Intrust employees will adopt that view or be willing to absorb the large, out-of-pocket costs under such plans.
"The two or three that did it are primarily doing it because they are relatively healthy and don't typically have medical expenses," Proffitt says.
Hinds, who has a California firm that specializes in financial planning for small business owners, says he expects the number of people using HSAs for retirement savings to grow.
Independent research bears out his expectations.
Forrester Research Inc. estimates the number of HSA accounts will climb from 390,000 in the first quarter 2005 to 6.3 million in 2008.
Financial services consulting firm TowerGroup estimates HSA assets under management will grow to between $10 billion and $26 billion by 2010.
REACH JERRY SIEBENMARK at 266-6192 or on the Web at jsiebenmark@bizjournals.com.
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posted by RonL @ 1:54 PM
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