Strategies for employees to tackle health care expenses

Health and finances are two of the top concerns on employees’ minds right now. The good news is that employees have a powerful benefit they can use to take charge of their health care expenses. Health Savings Accounts (HSAs) offer a flexible and easy way to manage health care expenses, whether to help pay for current medical expenses or to save for long‑term or unanticipated health care expenses. Here are five tips you can share with employees on how to make the most of this important benefit.


Benefit from the triple tax advantages1 of an HSA

  • Contributions to an HSA are not taxed.
  • Interest and investment earnings are tax‑free.
  • Any withdrawals employees make from their account to pay for qualified medical expenses also tax‑free.

Less money paid as taxes means employees have more of their income to use toward taking care of their family’s health care needs.


Maximize HSA contributions up to the annual limit

If their budget allows, employees should consider contributing the maximum allowed by the IRS in order to make the most of the HSA’s tax advantages. As employees consider contributing a portion of their paycheck to their HSA, they may be concerned about access to those funds. It’s important for employees to understand that they can access their HSA funds any time they need to pay for qualified medical expenses. In addition, any funds they put in their accounts are theirs for life, even if they change employers. At the end of the year, any unspent funds in an HSA roll over to the next year with an opportunity for employees to continue to build up their accounts so they’re ready anytime they need to pay for qualified health care expenses.


Save or spend the HSA as needed

While an HSA is specifically designed to be a savings account to help employees prepare for both routine and unplanned health care expenses over time, the reality is that they may need to spend some of the money they put in their accounts to cover out-of-pocket qualified medical expenses. The HSA is flexible to meet individual short- and long-term goals and needs. However, there are many good reasons employees, particularly younger and/or healthier participants who likely don’t have to use their accounts to manage large health care expenses, should be encouraged to use an HSA as it was intended—as a savings account. Saving and investing money in an HSA can potentially add up over time and can help employees be prepared for the unexpected down the road.


Invest account balance to maximize growth potential

An HSA earns interest like any traditional savings account, but money sitting in a cash account could be working harder for employees, especially with the current low interest rates. With the option to invest their HSA balance in a wide range of mutual funds, employees have the opportunity for federal tax-free earning potential that could help their account grow over time.

Potential impact of saving $2,000 in an HSA cash account each year vs. saving and investing $2,000 each year

Graph showing potential growth of saving $2,000 each year over 25 years, comparing investments and cash. Investments, assuming a 5% return, may grow to $98,016. Cash, assuming a 0.03% return, may grow to $51,924.

Hypothetical results are for illustrative purposes only and are not meant to represent the past or future performance of any specific investment vehicle. Each scenario assumes annual contribution of $5,000 and $3,000 in withdrawals with cash accounts earning 0.03% in interest and investment accounts a 5% rate of return. Investment return and principal value will fluctuate and when redeemed the investments may be worth more or less than original cost.


Use an HSA to prepare for retirement

A married couple could need as much as $325,000 to cover out-of-pocket medical expenses during retirement.2 Getting started early with an HSA can help employees be financially prepared. In addition, helping employees understand how to combine the benefits of an HSA with a 401(k) can help them make the most of their retirement savings.

HSA: Tax-free withdrawals to pay for qualified health care expenses. 401(k): Preserves to support desired retirement lifestyles.

Key takeaways

To learn more about HSA strategies for your employees, speak with your Bank of America representative.

Visit our health accounts website for more information about the benefits of an HSA for both your company and your employees.

Direct employees to our health account online learn center to help them get started with the basics of an HSA and tips for how to use and optimize their accounts.

1 About triple tax advantages: You can receive tax-free distributions from your HSA to pay or be reimbursed for qualified medical expenses you incur after you establish the HSA. If you receive distributions for other reasons, the amount you withdraw will be subject to income tax and may be subject to an additional 20% tax. Any interest or earnings on the assets in the account are tax-free. You may be able to claim a tax deduction for contributions you, or someone other than your employer, make to your HSA. We recommend you contact qualified tax or legal counsel before establishing an HSA.

2 Employee Benefit Research Institute, May 28, 2020.

Mutual Fund investment offerings for the Bank of America HSA are made available by Merrill Lynch, Pierce, Fenner & Smith Incorporated (“MLPF&S”), a registered broker-dealer, Member SIPC and a wholly owned subsidiary of Bank of America Corporation (“BofA Corp.”). Investments in mutual funds are held in an omnibus account at MLPF&S in the name of Bank of America, N.A. (“BANA”), for the benefit of all HSA account owners. Recommendations as to HSA investment menu options are provided to BANA by the Chief Investment Office (“CIO”), Global Wealth & Investment Management (“GWIM”), a division of BofA Corp. The CIO, which provides investment strategies, due diligence, portfolio construction guidance and wealth management solutions for GWIM clients, is part of the Investment Solutions Group (ISG) of GWIM.