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Include health savings accounts in fiduciary process

InvestmentNews
May 04, 2017

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It is anyone's guess how the partisan fight in Congress over health care will eventually shake out, but one trend that financial advisers need to pay particularly close attention to is the rise of health savings accounts. HSAs, which are increasingly used by both employers and advisers as a retirement and risk management tool, would have received a significant boost under the failed American Health Care Act. Some observers say the HSA provision would have nearly doubled the current HSA contribution limit for individuals in high-deductible health plans, and they may still go up in whatever legislative formulation is next.

HSAs are not just appealing as a tax-deductible spending account for medical expenses. Unlike flex accounts, HSAs have no 'use it or lose it' requirement. Account holders can carry over their balance from year-to-year and contribute as much as they like up to an annual maximum limit. According to Fidelity Investments, about three-quarters of HSA account holders withdraw less than they contribute each year. In addition, eligible participants in some plans can transfer some or all of their contributions to investment accounts to help pay for medical expenses over the long-term, including retirement. Thus, financial planners can look at HSAs as an important component of retirement planning. Fidelity, for example, estimates that the average couple that retires at age 65 will need $260,000 for health-care expenses. Finally, like 529 plans, withdrawals are not taxed as long as the assets are used for qualified expenses. This amounts to a triple tax benefit for HSAs — contributions are tax-deductible, returns on invested contributions grow tax-free and withdrawals are not taxed if you use them for qualified medical expenses. That's a combination that even a Roth IRA can't match.

But there is a catch. In the Department of Labor's new definition of an investment fiduciary, which is applicable on June 9, 2017, advice on HSAs with investment components, including certificates of deposit, will be a fiduciary act. Read More.

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