Using HSA Investment Strategies in a Holistic Financial Plan

Positioning of HSA’s investment strategy with The Bucket Plan

There are many solutions for financial advisors to conduct profitable business using Health Savings Accounts (HSAs). Implementing an HSA investment strategy into the client’s retirement plan can help them in the future, regardless of their medical needs.

Since the client owns the health savings account, they can take it with them when they retire or change jobs, and you can invest it the same way you would an account. Individual Retirement Plan (IRA) or 401k.

If the HSA is treated like any other investment account and maxed out each year, it can become a safety net that the client can use for medical expenses as they arise or save for their retirement.

Helping clients understand the benefits of a health savings account

Health savings accounts offer various solutions for financial advisors that can benefit their clients. But one of the biggest is the triple tax benefit of using an HSA investment strategy. And it’s never too early to plan for early retirement.

  • Tax deductible contributions
  • Funds grow tax-free
    • Interest
    • Dividends
    • Capital gains
  • Eligible medical expenses are exempt from tax

Understand the position of an HSA in the bucket plane

Clients with pre-existing conditions use their HSA in the now bucket of their overall financial plan. Health savings accounts can be used to regularly buy prescriptions and medical devices, pay for office visits, and more.

Flexible Spending Accounts (FSA) follow a use it or lose it approach, which means that the client will lose all remaining funds after a specified date. Alternatively, HSAs can be rolled over year after year without penalties.

Unlike IRAs and 401(k)s, health savings accounts do not require clients to receive distributions at a certain age.

Save for a Soon Emergency

Incorporating an HSA investment strategy into your client’s holistic financial plan can help them prepare for a planned procedure or expense such as elective surgery or orthodontics.

It falls into the soon bucket of the customer’s Bucket Plan.

What if an emergency occurs and the client finds themselves in a situation where they do not have enough funds in their health savings account to cover the associated costs?

Once in the client’s lifetime, you can transfer the maximum annual HSA contribution limit from the client’s IRA to their health savings account.

Boosting retirement savings in the bucket later

After age 65, the client can use their health savings account without penalty for non-medical expenses, but are taxed at the normal rate of income tax.

However, there is no guarantee that your clients will maintain good health until then. In fact, statistically most won’t.

It is therefore essential to set aside space in the client’s holistic financial plan for healthcare expenses.

Estimates in 2022 show that the average retired couple over 65 needs about $315,000 for medical expenses in retirement.

Don’t be afraid to have difficult conversations with them. Open and honest communications with clients are key to finding new lines of business and profitable solutions for financial advisors.

Developing the HSA investment strategy as part of the overall holistic financial plan can protect your clients if new health issues arise in the future.

HSA Investment Strategy Alternatives to Use in a Holistic Financial Plan

To take full advantage of the HSA investment strategy, it is exactly that: invest it.

Remember that there are three tax advantages to health savings accounts: tax deductible contributions, tax-free growthand tax-free distributions.

If the client has minimal health care costs and is able to maximize annual deposits and employer matching, this can become a healthy account that they can draw on later.

Client contributions can remain in the account and earn interest for as long as possible. If they can avoid dipping into their health savings account except when necessary, they can realize substantial returns in their retirement years.

Understanding HSA Investment Strategy Placement

Many health savings accounts require a minimum balance before the customer can use it for investment purposes like stocks, bonds, mutual funds, or exchange-traded funds (ETFs).

Where is the client on the retirement timeline? If they are retiring soon or planning to retire early, you may want to consider low volatility investment options.

Alternatively, you might consider a more aggressive investment strategy if they have time to invest before retirement.

To learn more about how C2P Business helps find solutions for financial advisors to realize profitable lines of business, book a FREE call today.

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