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Can employees afford retirement & HSA plan contributions? - Voya

Plan sponsors are often surprised to learn retirement & HSA plan contributions have a complementary relationship. Learn why employees can save for both.

One of the most common questions plan sponsors have regarding Health Savings Accounts (HSAs) is whether their employees can afford to make retirement and HSA plan contributions. And, many plan sponsors are surprised to learn retirement and HSA savings plans can complement one another.

In fact, 88% of HSA accountholders maintained or increased their 401(k) contributions after enrolling in an HSA.1  Workers who participate in both HSAs and defined contribution plans tend to save more than workers who only use one vehicle.

Although HSAs and defined contribution plans clearly work better together, Americans are much more likely to enroll in defined contribution plans over HSAs. There are only an estimated 26 million HSA accounts8 compared to more than 100 million 401(k) accounts3. However, there are a growing number of reasons why employers should encourage the use of HSAs as a savings vehicle for retirement healthcare expenses. A few of the top reasons are explained below.

Rising cost of healthcare can delay retirement

According to the Employee Benefit Research Institute (EBRI), a 65-year old couple would need $296,000 in retirement savings for a 90% chance of covering median retirement healthcare expenses4. On average, however, Americans have less than $3,000 in HSAs for healthcare costs, which creates a potential retirement healthcare savings gap of $293,157. 5

The potential healthcare savings gap coupled with the rising cost of healthcare is causing some American workers to delay retirement. An estimated 30% of workers who reported an increase in healthcare costs indicated they were delaying retirement.6

While Medicare Part A offers retirees basic medical insurance coverage at age 65, it does not cover all expenses. Even with this benefit, many American workers may not be prepared for the additional cost of supplemental Medicare premiums, out-of-pocket expenses and long-term care.

HSAs can serve as emergency savings funds

Today, one out of four Americans have no emergency savings at all.7 Confronted with a short-term, unexpected need, such as a trip to the emergency room, many people turn to their retirement plan for a hardship withdrawal. In fact, 32% of hardship withdrawals from retirement plans are the result of a medical emergency.8

Fortunately, the funds in an employee’s HSA can serve as an emergency savings account. HSA withdrawals used to pay qualified medical expenses will be tax free. Although the funds in the HSA may be used for non-medical expenses before age 65, the withdrawals will be subject to ordinary income taxes as well as a 20% early tax penalty. By encouraging your employees to contribute to an HSA, you’ll be helping them create an emergency savings fund.

HSAs can offer substantial tax savings for employees and employers

HSAs offer employees and employers unique benefits in comparison to other retirement accounts. With HSAs, money goes in, grows, and comes out tax free as long as the funds are used on qualified medical expenses. This makes these accounts potentially triple-tax-advantaged vehicles for the employee. In addition, contributions to HSAs are not subject to FICA taxes, if made via payroll deduction.

And, after age 65, the employee can use the funds for non-medical expenses (paying ordinary income taxes on distributions) without an additional penalty (prior to age 65, any employee withdrawals for non-medical expenses are subject to ordinary income taxes, plus a 20% early tax penalty).


HSA taxation compared to qualified retirement plans and IRAs

Savings vehicle

Taxation of contributions

Taxation upon withdrawal


 No income tax

 No FICA tax (if made via payroll deduction)

 Not taxed upon distribution, provided withdrawals are used for qualified medical expenses

 Traditional (non-Roth) IRA and qualified retirement plans

 No income tax

 FICA tax is imposed

 Money is taxed upon distribution

 ROTH IRA and qualified retirement plans

 Contributions are subject to income and FICA taxes

 Money is not taxed upon distribution**

* Certain states may apply a state tax on HSAs.

** If qualified distribution criteria is met. 

In the end, it’s imperative American workers understand the benefits of contributing to both their retirement and HSA plan. However, they need help. And employers play a critical role in encouraging the use of HSAs to help employees retire on time and with dignity.

Explore more:   Can HSAs help close the retirement healthcare savings gap? 

Looking for actionable ways you can increase HSA engagement to help drive better outcomes for your employees?

Download the latest Voya Perspectives piece to learn the five things you can do to increase HSA engagement.

This material is provided for educational purposes only.  Neither Voya® nor its affiliated companies or representatives provide tax or legal advice. Please consult a tax adviser or attorney before making a tax-related investment/insurance decision.


1 CNBC, Health savings account contributions can boost your retirement, 2017.

2 VRIAC hardship withdrawal data analysis (July 1, 2018 – June 30, 2019)

3 American Benefits Council, 401(k) Fast Facts, January 2019.

4 Employee Benefit Research Institute, Education and Research Fund, 2018.

5 Employee Benefit Research Institute, Issue Brief, 2018.

6 Employee Benefit Research Institute/Greenwald & Associates, Workers Rank Health Care Most Important Issue Facing U.S., 2018

7 Bankrate’s Financial Security Index, June 2018.

8 2019 Mid-Year HSA Market Statistics and Trends, Devenir Research.