The year 2018 may be the year of health savings accounts (HSAs) for financial advisors.
Managing HSA accounts is "the direction the industry is moving," said Peter Stahl, principal of Bedrock Business Results, a consulting firm designed to help financial advisors understand their clients’ healthcare challenges during retirement.
The fact that medical expenses are now clients’ top retirement concern has thrust HSAs into the spotlight, Stahl said in a speech to advisors at Schwab's annual Impact conference.
"Healthcare costs are now the biggest issue for people," Stahl said. "The national average for medical expenses once someone reaches age 65, and is on Medicare, is $6,772. HSAs really present advisors with a great opportunity to help clients deal with this problem."
A number of planners are eyeing the opportunity to manage the investments in a client's HSA account, while researching which companies to work with and how much to charge. "The industry is fluid right now," said Stahl.
Advisors also should consider working with companies who offer HSA accounts to employees, Stahl said. That opportunity, he added, "may be the rocket booster in 2018."
Bright Future, Tax-Free
The tax-advantaged accounts allow users to save for healthcare costs their insurance doesn’t cover. Money is deposited tax-free, grows tax-free, and can be withdrawn without paying taxes, as long as the money is spent on health and medical expenses.
However, HSAs can be used only by people with qualifying, high-deductible health insurance.
HSA accounts now have more than $42 billion in assets, Stahl said—a 23% increase from a year ago. Nearly $7 billion in HSA accounts is invested—a 44% jump from the year before.
The trajectory is likely to continue on a fast-track growth path, according to Stahl.
"The future is very bright for HSAs," he said, noting that deductions and contributions are expected to increase and that the mandate for HSAs was set to be expanded in the Republican healthcare bill that narrowly failed to pass in the Senate earlier this year.
Advisors should recognize how HSAs can add value to their relationship with clients, Stahl said.
"Being able to pay medical bills in retirement with tax-free money is an important part of financial planning that clients will appreciate," he noted.
Keep Clients Informed
Advisors should urge clients to contribute the maximum amount to their HSAs and utilize the catch-up provision, which allows individuals over 55 to contribute an extra $1,000 a year, Stahl recommended.
A tax-free 401(k) plan with an employer match should be funded first; but as soon as the match is met, clients should begin to fund their HSA, Stahl suggested.
Clients should be notified that an HSA can be used to pay for a wide array of medical expenses, including vision and dental care, prescription drugs, hearing aids, Medicare, and long-term care insurance premiums and home modifications, such as ramps for wheelchairs.
Advisors also may want to suggest apps, such as HSA Coach, that help clients keep track of their medical expenses.
Helping clients choose the best custodian for their HSA accounts is critical, Stahl said, telling advisors to begin by examining the investment options offered, fees, and how the custodian communicates to clients.
—by Charles Paikert
Charles Paikert is a senior editor at Financial Planning. Follow him on Twitter at @paikert.
