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401(k) & HSA Contributions: How Can Employees Get the Maximum Out of Both?

By March 2, 2022 No Comments

Many employers offer both 401(k) and HSA accounts to their employees. Since two different kinds of professionals typically handle these accounts, they’re rarely spoken about together. As employers, we can empower employees to be proactive about securing their financial future by educating them on how to best manage these accounts. What exactly is the connection between 401(k) & HSA contributions, and how can employees invest in both accounts to get the maximum benefits?

Standalone HSA Benefits

Employees who choose to invest in their HSA create a security net for qualified healthcare expenses. Essentially, any income placed into the HSA is not taxed and is secured in an account used exclusively for future qualified healthcare expenses. HSA funds are able to continue growing tax-free, and any funds not used for healthcare may be invested for future use.

Standalone 401(k) Benefits

401(k) accounts are not strictly tied to qualified healthcare expenses. Instead, they allow individuals to contribute a specified amount of their salary to compound as an investment in their future. These earnings are not taxed unless a penalty is assessed because the account holder made a withdrawal prior to turning age 65.

The Best of Both Worlds

401(k)s and HSA are powerful tools on their own, but we have found that employees can develop a comprehensive retirement strategy when using their benefits in tandem. Generally, it is considered a best practice to contribute at least enough to the 401(k) to get the full match from the employer before putting money anywhere else.

From there, we have to remember that a 401(k) account holder will be penalized if they removed funds from the account prior to reaching the age of 65. However, medical emergencies don’t always wait for retirement to take place. Essentially, additional contributions to the HSA can serve as a safeguard to the 401(k). If a medical emergency takes place, the HSA will allow the employee to access funds for care without penalty. On the other hand, if the employee manages to avoid any costly medical situations, they will likely be able to cover their care out of pocket. This means that their 401(k) and HSA accounts will be left to grow in tandem, setting them up for a secure future after retiring.

Ensure Your Employees Are Getting The Maximum Benefit from their 401(k) & HSA Accounts with TriBridge Partners

To discover how our experts can assist your organization or business, please call our office today at 240-422-8799, email Jessica Storck at Jessica.storck@tribridgepartners.com, or find us on LinkedIn.