With multiple tax-advantaged savings options available, your credit union members may often wonder where to defer their money when saving for the future. Sure, there’s the 401(k) plan—or another type of employer-sponsored retirement plan—and the IRA, but they shouldn’t forget about the health savings account (HSA). For members who have access to all of those—perhaps with limited resources to invest—it may be necessary to prioritize where they save to ensure that they get the most from their dollars.
A common, historically recommended strategy is to first defer money to a 401(k) plan (or other employer plan with a matching contribution) up to at least the amount required to receive the full employer match. After all, not deferring enough to receive the match is like throwing away free money. Plus, saving with an employer plan—no matter how much—can be an easy step for your members because the money is contributed through payroll—they don’t have to think about it or feel like they’re missing it. And because there are restrictions on accessing those dollars, members are more likely to leave the money in the retirement account and let it accumulate.
But a similar employer match scenario is becoming more common: employers that offer HSA-compatible high deductible health plans and make contributions directly to their employees’ HSAs through payroll deduction. This “employer match” feature, when combined with employees contributing on their own, makes the HSA as strong of a savings vehicle as the 401(k) plan, but with more flexibility in accessing the assets. And your credit union can play a vital role by educating employers and providing them with the tools to educate their employees about the HSA and its benefits (e.g., using flyers or brochures to explain HSAs and ensuring a user-friendly website to find HSA information).
continue reading »