We’re all concentrating on articles, videos, and experts telling us the best ways to invest. Instead of choosing one method over another, it makes great investment sense to take advantage of multiple accounts and strive for the best returns possible. In particular, health savings accounts (HSAs) and 401(k)s complement each other in various ways, with the ultimate benefit going to the account owner. Below, we’ll highlight how HSAs and 401(k)s work together in a health-to-wealth approach to help participants round out their retirement strategy.
It’s Never Too Late to Start a Plan
Opening a 401(k) or HSA isn’t only beneficial when employees are just beginning their careers. Both accounts make concessions for people who have decided to start an account later in life.
For instance, a 401(k) allows employees age 50 and over to take part in a catch-up contribution plan, which allows individuals to contribute even more money. For a 401(k) in 2020, the catch-up contribution limit for employees aged 50 and over is $6,500 a year.
For an HSA, account owners 55 or older can contribute an extra $1,000 each year. Since medical care costs rarely decrease as people age, this can help owners take advantage of their tax savings.
Making the Best Choices
Crunching the numbers backs up this dual savings strategy. People using both 401(k) plans and HSAs have the potential for higher aggregate savings rates than people who just use a 401(k). Mercer puts it this way: If an employee receives both the employer match under the 401(k) and the tax advantage from using the HSA, under a 50% match scenario, the benefit value is doubled—50% from the employer and approximately the same amount in savings.
We’re lucky to have a variety of options for our health care and retirement, and it’s helpful that there’s no right or wrong way to take advantage them. By making the most of HSAs and 401(k) tax benefits, account owners are able to take care of their personal health and investment needs.