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Are HSAs the New 401(k) Plans?

BY: KATHLEEN KOSTER

As health savings account account balances grow and become sizable assets for employees, they become a powerful – and increasingly necessary – financial planning tool.

For example, a 65-year-old married couple who retired in 2011 with median prescription drug expenses would need $287,000 to have a 90% chance of covering all medical costs after retirement, according to an Employee Benefit Research Institute study.

Retirement expert Kimberly Sexton believes an employee can fund that number by saving via a health savings account.

By saving $5,000 a year in an HSA at a modest 5% rate of return for 25 years before retiring, an employee will have more than the recommended $250,000 to cover retirement medical expenses.

“Health savings account contributions go in tax-free, grow tax-free and come out tax-free,” Sexton explained to benefits managers at EBN’s 2012 Benefits Forum & Expo.

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