More Participants Contributing to Both 401(k) and HSA

In light of surging health care costs, an HSA can serve as an important component to a holistic retirement-planning strategy.

By Javier Simon | May 12, 2017
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Despite the worry that participants in high deductible health plans (HDHP) with health savings accounts (HSAs) cannot afford to contribute to both the HSA and their 401(k) plans, research by Fidelity Investments finds the opposite. Its clients’ participants who contribute to both vehicles on average defer higher rates (10.6% in 2016) to their 401(k)s, than those saving in only their 401(k)s (8.2% in 2016). Moreover, the firm finds that the overall number of employees contributing to both a 401(k) and an HSA increased by 21%.

“We continue to see people participate at higher levels every year, and we continue to see the deferral rates increase,” explains Will Applegate, vice president, Fidelity Investments.

A recent study by United Benefit Advisors (UBA) reflects these findings. According to the firm’s survey, HSA enrollment is at 17%, marking a 25.9% increase from 2015, and nearly a 140% increase from five years ago. Moreover, a study by Devenir projects that by the end of 2018, the HSA market will exceed $50 billion in assets among more than 27 million accounts. 

But despite these findings, there is still much in the HSA space that can be remedied. Among participants, there are still several misconceptions surrounding HSAs. In fact, Fidelity finds that only three out of ten employees surveyed know that HSA money rolls over year after year. For many participants, misconceptions like this present road blocks preventing them from preparing for what is likely to be the most burdensome expense in retirement: health care.

According to Fidelity’s research,  a 65-year-old couple that retired in 2016 would need an estimated $260,000 to cover medical expenses throughout retirement. Couple that with rising health care costs and the uncertainty of the country’s health insurance system, and today’s employee is looking at a bitter pill to swallow.

NEXT:  Statistics may work to a plan sponsor’s advantage.