Financial advisers who manage a company's retirement plan should try to fill the same role for the firm's health savings accounts — a move that would position them to take part in one of the fastest growing areas of wealth management, an expert said.
The number of firms that offer high-deductible health plans with an HSA component increases every year, said Peter Stahl, president of Bedrock Business Results. Advisers who work with 401(k) accounts should offer employers the same range of investment choices for HSAs. Capturing the assets in HSAs could be lucrative for advisers.
"It is one of the areas that will be the rocket booster in 2018," Mr. Stahl said at the
Schwab Impact conference in Chicago on Thursday.
He suggested this as an adviser's pitch: "I want to be managing the HSAs as well as the 401(k)s. We're going to mirror what we're doing in the 401(k)."
The tax-advantaged savings and investment accounts for medical expenses have been a popular topic at the Schwab event. On Wednesday, Schwab chief executive Walt Bettinger predicted that
"eventually everyone will have HSA accounts."
The accounts, which allow tax-free contributions, gains and withdrawals to cover medical expenses, contained $42 billion in assets last year, a 23% increase from 2015, according to statistics cited by Mr. Stahl. There are 21 million accounts.
Mr. Stahl recommended that clients invest their HSAs the way they would any other account and let them build up in advance of retirement by paying medical expenses out-of-pocket. In retirement, the funds can cover medical expenses, such as Medicare premiums, or the money can be withdrawn and used for other purposes as long as the client has saved receipts of previous out-of-pocket spending on medical costs. Withdrawing the funds for non-medical expenses before retirement will trigger penalties, but after retirement would only spur income taxes, much like a traditional IRA or 401(k) would.
"This is a real asset," Mr. Stahl said. "No one should ever pay a penalty on an HSA withdrawal."
There should be
no rivalry between 401(k)s and HSAs, according to Mr. Stahl. It's not a matter of choosing one over the other. They should both be utilized to fund retirement. He suggested clients contribute to 401(k)s to get their employer's match, fully fund their HSAs and then return to funding their 401(k).
He foresees the HSA contribution limits — now set at $3,400 for an individual and $6,750 for couples, with a $1,000 catch-up for those over 55 — increasing, and eligibility for HSAs possibly expanding because of their popularity with federal lawmakers. Proposals to repeal the Affordable Care Act featured HSA provisions.
"You do have bipartisan support for encouraging people to put their money away for medical expenses," he said.
The other factor in favor of HSA growth is the precarious state of entitlements like Medicare.
"The future is very bright for HSAs because health-care expenses are enormous in retirement," Mr. Stahl said. "If we want to provide comprehensive wealth management to our clients, we have to engage in this topic."
