INSURANCE
But it turns out that the vast majority of account holders , including high earners , use their HSAs as debit accounts to pay those medical bills . Just 4 % to 5 % of HSA account owners max out their contributions every year , even though some employers match contributions , and 10 % or fewer invest those balances in something other than cash , says William Stuart , an HSA expert who is a consultant and author . “ Too many are using these like health flexible spending accounts , as an annual reimbursement account ,” he says .
There seem to be a few reasons why . It ’ s safe to say that insufficient income is one . Another is the fact that few account owners are disciplined enough to max out those contributions and leave them alone to grow . It ’ s part of why Zuraw , who recommends the strategy when it makes sense , says only about 10 of her 155 clients use it . And not only does the “ medical IRA ” strategy require the high deductible plan and HSA combo , but the HSA must provide access to longer-term investments rather than just deposit accounts .
If you invested $ 4,150 a year between ages 30 and 65 , and your balance compounded at 8 % annually , you ’ d have approximately $ 500,000 to spend on everything from Medicare premiums to prescription drugs , tax-free , in retirement .
Savers ’ investment options typically depend on their employer . Workers usually get an HSA through a bank or brokerage company that has partnered with their companies . Smaller banks and credit unions offering HSAs typically provide money-market accounts and perhaps a CD option ; they lack long-term investment options . Other employers offer a menu of perhaps two or three dozen mutual funds . The luckiest workers ’ companies partner with firms like Fidelity or HSA Bank to offer account holders full access to public markets .
Without built-in investment access , employees might have to get creative to make the medical IRA strategy work . While building his own balance , Stuart has periodically moved funds from his employer-provided HSA to a private one with a brokerage account that he opened .
Lack of education and guidance are also holding adoption of the strategy back , Stuart says : “ People don ’ t understand this concept well enough .”
Henley seconds that . “ Most individuals , even at the upper echelon of wealth , put the money in and take it out that year or the year after that , almost like a glorified savings account ,” he says .
This is where advisors can help — but too often fail to do so , Henley argues . One reason is that advisors don ’ t want anything to do with medical plans or medical coverage . “ You need to be enrolled in an HSA-eligible high-deductible health plan to be eligible to make contributions ,” he says , “ and they don ’ t want to get involved in clients ’ medical-plan decisions .”
Another problem may be the perception that there just isn ’ t much money to be made in managing HSAs . Only 7 % of HSA account owners have balances of $ 10,000 or more , according to Devenir Research . Managing fat IRA rollovers , not measly HSA balances , is what advisors are after . “ There ’ s not a real revenue play for financial advisors ,” Stuart says . “ There ’ s no million-dollar balance to play with .”
Stuart experienced this bias firsthand a few years ago while advisor shopping : His own HSA has a six-figure balance , but advisors he interviewed were fixated on his retirement balance .
Henley says other advisors scoff when he brings up the medical IRA strategy on conference panels . But he ’ s accustomed to it . “ We used to work at Merrill Lynch , and the whole office would kind of laugh at us for bringing it up ,” he says . “ I would say , ‘ This is the wave of the future — we ’ re going to give holistic advice on everything the client has .’”
Another challenge seems to be that by the time many clients seek out advisors , often starting in their mid-40s , they ’ ve already lost decades of potential compounding . “ So often advisors aren ’ t talking to people until they ’ re in their mid-50s and starting to think about retirement ,” says Stuart . “ By then they ’ ve lost 20 years .”
Clients can give advisors discretionary management over their HSAs just as they can with IRAs , and they can bill for their work on an AUM-fee basis . Brandywine currently offers the service without charge , but Henley and company are considering changing that . If the firm decides
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54 | FINANCIAL ADVISOR MAGAZINE | MAY 2024 WWW . FA-MAG . COM