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The Triple Tax Benefits of HSAs
Helping clients invest assets in their HSAs
Happy Sunday everyone, and welcome to Benzinga’s financial advisor newsletter.
Today, we’re diving into the straightforward yet often overlooked world of Health Savings Accounts (HSAs). According to the Center on Budget and Policy Priorities, only a sixth of privately insured adults have HSAs, and even fewer know how to leverage them effectively.
Let’s get into the industry chatter on how your clients can make their HSA dollars work for them.
Lastly, if you would like to be featured in our upcoming advisor spotlight editions, click here to send us an email.
INDUSTRY CHATTER
Many advisors are quick to tout the tax benefits of Health Savings Accounts.
There are a few key benefits to the HSA, like how contributions reduce taxable income. And as long as distributions are used for qualifying expenses, they can be withdrawn without a tax burden.
However, a recent survey shows that many are missing out on another benefit of HSAs. Advisors can educate new and current clients on the perks of funding, investing, and utilizing an HSA.
Putting HSA Dollars to Work
A third benefit to Health Savings Accounts lies in their ability to grow funds. HSA funds can be invested— a fact that some HSA account holders aren’t aware of.
According to a recent survey from the Plan Sponsor Council of America, less than 20% of HSA participants invest assets in their HSAs.
Since this is a tax-advantaged account, the dividends, interest, and capital gains from those investments aren’t taxed. The treatment of gains is similar to assets inside a 401(k), IRA, or Roth IRA.
Savvy advisors can educate clients on the triple tax benefits of the HSA:
First, contributions are non-taxable (up to a certain limit)
Second, qualifying distributions are non-taxable
Third, gains from invested assets inside the HSA are non-taxable
An In-N-Out Inspired Menu
The popular U.S. burger chain In-N-Out keeps its menu simple. Customers can order burgers, fries, and shakes.
The majority of employer-sponsored HSAs take a similar approach, offering a small amount of mutual funds for participants to choose from. The options typically include a more aggressive fund, mostly concentrated in stocks, a more conservative fund with bonds, or money market assets.
Advisors can assess their clients’ risk profiles to gauge which allocation would be right for each circumstance.
Double Agent HSA
Most individuals have medical expenses pop up during their lifetime, but some people eat their vegetables, take their daily Flinstone’s vitamin, and manage to have exceptional health. What benefits could an HSA offer the extremely-healthy?
These health-conscious individuals can utilize their HSA as a retirement account.
People 65 and over are permitted to take out funds from their HSA without a penalty. Before 65, any unqualified distribution from an HSA would face taxes and a 20% penalty. A distribution for a person aged 65 or older would still face taxes, but not the hefty penalty.
Clients trust advisors to steer them in the right direction along their financial journey. Advisors can present the benefits of HSAs as another beneficial financial option for their clients.
MARKET RECAP
Remarks from Federal Reserve officials alongside new economic data significantly shaped investor sentiment over the last week.
The U.S. economy continues to demonstrate resilience, with the manufacturing sector returning to expansion after 16 months of contraction and the labor market adding 303,000 new jobs in March, surpassing economist expectations.
Buoyed by this positive economic momentum, recent public statements from Federal Reserve officials have tempered expectations of an imminent interest rate cut, with Fed governors reiterating the need to see more positive data on disinflation.
Wall Street saw a varied performance this week, with uncertainty regarding monetary policy taking the spotlight. Energy stocks, as tracked by the Energy Select Sector SPDR Fund, notably stood out as oil prices surged to their highest levels in over six months, inching closer to $90 a barrel.
Apple’s Robotics Ambition
Apple is reportedly shifting its focus from electric vehicle ambitions to home robotics, reflecting its continual search for the next big innovation. Initiatives include a mobile robot and a sophisticated tabletop device with a display repositioning arm aimed at redefining smart home technology.
Analysts have expressed differing opinions on the possibility of Apple venturing into the realm of personal home robots.
Disney's Board Wins Vote
Disney shareholders overwhelmingly supported the company's current board, decisively defeating activist shareholder nominees from Trian and Blackwell. This result solidifies CEO Bob Iger‘s leadership as Disney aims to focus on growth, value creation and maintaining its position in the entertainment industry.
Demand Overwhelms Supply
Eli Lilly faces challenges meeting the high demand for its weight loss drugs Mounjaro and Zepbound, with shortages reported on Amazon Inc. Pharmacy. This situation underscores the drugs’ success and the company’s efforts to scale up manufacturing capacity.
EV Penny Stock Rallies
Nikola Corp., an electric truck manufacturer, has outperformed major companies like Tesla, Rivian Automotive, and Lucid Group Inc. in stock performance terms so far in 2024. This growth comes after a tough 2023 for Nikola that saw stock value dips, recalls and leadership changes. Nikola’s focus on hydrogen fuel cell trucks contributes to its share price recovery, in contrast with the broader EV market’s downturn.
WHAT THE PROS ARE WATCHING
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THE WEEK AHEAD
Economic Data
Monday: Chicago Fed President Austan Goolsbee's radio interview
Tuesday: NFIB optimism index
Wednesday: Consumer price index, Core CPI, Monthly U.S. federal budget, Fed Gov. Michelle Bowman speaks
Thursday: Producer price index, Core PPI, Chicago Fed President Austan Goolsbee speaks
Friday: Import price index, Consumer sentiment (prelim), Atlanta Fed President Raphael Bostic speaks
Earnings
Monday: Inozyme Pharma
Tuesday: WD-40
Wednesday: Delta Air Lines
Thursday: Goodfellow Inc.
Friday: BlackRock Inc., State Street Corp., Citigroup
Click here for the full calendar of economic data and earnings reports.
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