Over the past five years, more employers have become interested in offering and/or contributing to health savings accounts, or HSAs, according to a Society for Human Resource Management report on employee benefits. Different from flexible spending accounts (FSAs), health savings accounts allow employees to save and pay for health care expenses on a pretax basis.
Despite increasing interest and participation in HSAs, these financial accounts still remain largely elusive for both mortgage originators and brokerage owners. This lack of understanding about how HSAs work is unfortunate since these accounts can benefit mortgage brokerage owners and their employees in myriad ways.
Tax benefits
Health savings accounts enable mortgage originators, processors and coordinators to help pay for qualifying medical expenses while reaping tax benefits. They’re available only if paired with a high-deductible health plan. In early 2020, leading financial website MarketWatch described HSAs as a great deal due to the “triple tax break” that they offer.
For salaried employees and commission-based originators alike, the triple tax break refers to the fact that individuals earn a tax deduction when they deposit funds into their HSAs. The growth on these funds also is tax deductible. Finally, when using distributions to pay for qualified medical expenses, withdrawals from the HSA are tax-free.
Likewise, for mortgage brokerage owners, contributions to HSAs on behalf of your employees may be used as a tax deduction. Moreover, as an employer, you will not be responsible for payroll taxes on your employees’ pretax contributions. Third, you’ll find that the premiums on the accompanying high-deductible health plans are lower, potentially reducing your cost-sharing responsibility.
It is important to note that there are contribution limits to HSAs. For those under the age of 55, the maximum contribution is $3,550 for individuals and $7,100 for families. People over the age of 55 also may contribute an additional $1,000 “catch-up” deposit. In addition, mortgage professionals are not eligible for an HSA if you or your spouse has a full-purpose FSA, or if you are claimed as a dependent by anyone else.
Unlike an FSA, deposits into HSAs do not need to be used in the same calendar year. Instead, the money rolls over year after year without a limit on when the funds accumulated must be used.
Individuals can take distributions for qualified medical expenses virtually anytime, even years after medical expenses were incurred, and the distributions will remain tax-free. Finally, it’s important to note that the HSA belongs to the individual and remains yours even if you switch insurance plans, retire or switch companies. By contrast, flexible spending accounts are owned by the employer.
Retirement planning
Maybe the most unique feature of HSAs for mortgage professionals lies in the retirement benefits they afford. Operating similarly to an individual retirement account, health savings accounts can be an incredibly powerful retirement tool.
Consider that you may contribute up to $3,550 per year as an individual until you enroll in Medicare. The money in the account can be reinvested at your direction to accelerate growth and will likely earn interest over the years. The money accrued and withdrawn for qualified medical expenses will always remain tax-free.
This is unique because while you’re working, you may opt to pay for medical expenses out of pocket. As long as you save receipts, however, you may reimburse yourself at a later date, tax-free, from your HSA. These types of distributions may well come in handy after retirement. Be aware, however, that the medical expense will need to be incurred after you opened the HSA.
In addition, after the age of 65, you may take distributions for nonmedical expenses, although these distributions will be taxed as income. In this way, funds in your HSA can be used similarly to a 401(k) after age 65.
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As a mortgage company owner, offering HSAs to employees may be considered a beneficial recruitment or retention tool. Your company can match employee contributions as long as the total contribution does not exceed the maximum limits of $3,550 or $7,100.
It is always recommended that you speak with a trusted financial adviser and an insurance broker before making the switch to any new insurance product. That said, for brokerage owners looking to reduce premiums and maximize tax benefits — and for mortgage professionals who are relatively healthy and are looking to proactively save for post-retirement medical expenses — a health savings account may be just the product you’re looking for. ●
