With nearly 37.5 million open health savings accounts (HSAs) as of 2023, it’s clear that the accounts are growing in popularity with employees, and with good reason. When used effectively, HSAs can help employees achieve financial well-being, as funds receive triple tax savings.

However, even with the rise of HSAs, there is still a lot of confusion or questions surrounding how the accounts actually work. We’ll debunk several common misconceptions that employees may have and provide answers that can be used to help your employees make informed decisions about HSAs.

1. HSA funds expire at the end of the year.

Many employees often confuse an HSA with its shorter-term counterpart, a flexible spending account (FSA), which requires participants to use their funds by the end of the plan year. An HSA works like a bank account, any funds that are in the account are owned by the accountholder and do not expire, meaning, they rollover from year-to-year.

Even if an accountholder were to lose HSA eligibility, whether that’s from no longer being enrolled in a HSA-qualified high deductible health plan (HDHP) or any other reason, they can access and use their HSA funds, although won’t be able to make new contributions.

2. Younger employees don’t need an HSA.

Many employees, especially younger employees, may put off investing in their healthcare because they think it’s something to worry about at a later date.

While it may be true that younger people generally have lower utilization of health care, there are immense benefits for them to start an HSA as soon as possible. The tumultuous financial environment younger employees have faced since joining the workforce has heightened the necessity for financial savings and security. A recent Bankrate study found that Gen Z is more likely than any other generation to report regretting their lack of savings for emergency expenses. Having that HSA can start alleviating the mental stressors for younger employees and gives them some security in case of health emergencies and long-term expenses.

There’s a clear trend that accounts that have been open longer have higher balances. According to EBRI, HSAs opened in 2012 have an average balance of nearly $11,000, compared to $1,900 average balance for accounts opened in 2022. Promoting HSAs as a long-term solution to younger employees can start the journey towards financial well-being.

3. Employees who might be close to retiring think they don’t have enough time to build up their HSA balance.

It’s never too late to get started with an HSA. Even a few short years of building up funds can make a big difference in terms of saving up for retirement health care costs.

Accountholders can choose where they want their HSA funds to sit, whether it’s in a traditional deposit account or a high-yield interest option, or invest it once they reach a $1,000 balance. The high-yield option gives HSA accountholders an opportunity for their funds to earn interest at a higher rate. Accountholders who choose to invest can get customized investment decisions made based on their age and risk profile. This means, accountholders can choose to be less risky because their upcoming retirement shortens the lead time before using their HSA funds, but still can be a great opportunity to earn.

Another great feature for those who are 55+ is to take advantage of the up to $1,000 catch-up contribution. This is on top of the annual limits that anyone with an HSA can contribute to allow those who are closing in on retirement to put away more to save for upcoming retirement healthcare costs.

One last important thing to note is that employees who enroll in Medicare lose their HSA eligibility. However, HSA funds can be used even after enrolling in Medicare.

4. HSAs are meant to be used on everyday health expenses.

While spending HSA funds on current medical expenses is a common and valid way to use HSA funds, accountholders who are only using funds on current expenses are not maximizing the full tax-advantages of the account. While HSAs ares also considered tax-free as long as funds are eventually used for eligible medical expenses. This means that the money that you contribute, spend, and earn through interest and investing is all tax-free. a great way to cover current medical expenses, HSAs are also a great long-term savings vehicle that can be used for future healthcare costs or retirement. Regardless of how an accountholder uses their funds, contributions are tax-free. However, any additional money that’s earned from interest and/or investing is also considered tax-free as long as funds are eventually used for eligible medical expenses. This means that the money that you contribute, spend, and earn through interest and investing is all tax-free.

5. If an employee opens an HSA, they cannot enroll in any FSA.

While being enrolled in a health care FSA is considered disqualifying coverage for an HSA, there are two other FSAs that employers can offer employees who are also enrolled in an HSA.

A limited health FSA can be used on eligible dental or vision expenses. Accountholders who choose to contribute to both a limited health FSA and an HSA can maximize their savings. Employers interested in enriching their benefits program by offering both a savings and spending account can offer their participants an HSA and limited health FSA.

A dependent care FSA can be used to pay for eligible dependent care expenses for children or other eligible dependents. Utilizing this FSA has no impact on HSA eligibility.

6. Accountholders need to be experts in investing before doing so with their HSA.

Many accountholders are generally not taking advantage of the ability to invest their HSA funds, which could be due to inadequate education or confidence in investing abilities. However, according to Devenir, HSA investment accounts have an average balance of over $19,000, which is 7.6% higher than non-invested HSA balances.

While investing can seem daunting to many accountholders, we try to make it easy. EBC’s HSA offers a modern and personalized investment experience that helps accountholders work towards their long-term financial goal. Whether they are new to investing and are looking for a guided experience or are seasoned investors looking to research and trade stocks and ETFs, accountholders have the tools available to build wealth and save for retirement.

Upcoming HSA Webinar

On Thursday, May 23 at 1 PM Central, we are presenting HSAs: Unlocking the Full Potential of Well-Being. Join our webinar to learn more about how offering an HSA can help employers stay competitive and contribute to their employees’ overall financial wellness.

In this webinar we’ll specifically go over:

• Traditional and High-Yield Interest Rates
• Investment Opportunities
• Saving for the Future and Retirement