'Merck employees looking to maximize their Retirement Savings should take full advantage of the unique triple tax advantage of Health Savings Accounts (HSAs),'' said Brent Wolf, a representative of The Retirement Group, a division of Wealth Enhancement Group.
The higher HSA contribution limits for 2024 offer a tax-free way for Merck employees to fund medical expenses in retirement, ''says Paul Bergeron, a representative of The Retirement Group, a division of Wealth Enhancement Group.
In this article, we will discuss:
1. HSA Contribution Increases for 2024: Individual and family limits changed.
2. Triple Tax Advantage of HSAs: HSAs beat 401(k)s in tax savings.
3. HSA Benefits for Retirement: Long-term healthcare using HSAs.
The IRS just announced good news for A.O. Smith employees looking to grow their retirement accounts. From 2024 onwards, maximum contributions for Health Savings Accounts (HSAs) will increase sharply. People will be able to contribute USD 4,150 and families USD 8,300 a year. The new limits are an enormous jump from the previous year's USD 3,850 for individuals and USD 7,750 for families. And anyone over 55 can contribute another USD 1,000 as a catch-up contribution, for a combined maximum of USD 5,150 and USD 10,300 for couples. This development gives A.O. Smith employees another way to build up retirement savings with HSAs.
For longtime savers, those adjustments are important because an HSA could outshine more traditional retirement savings vehicles like 401(k)s and individual retirement accounts (IRAs). Financial coach and author Blake Hilgemann says, 'Every dollar in an HSA is worth at least 17.65% more than a dollar in a 401(k).' The arithmetic behind that claim is in the tax advantages HSAs provide. And unlike many other tax-advantaged retirement accounts, HSAs allow contributions and investment earnings to be tax-free if the withdrawals comply with account rules.
The tax advantages of HSAs outweigh traditional 401(k)s and IRAs, which pay a tax deduction on contributions before withdrawals during retirement. And early withdrawals before 59 1/2 add another 10% penalty. In contrast, HSAs offer a triple-tax advantage. Contributions are tax deductible, investments grow tax free inside the account, and qualified medical expenses can be withdrawn tax free.
Now you understand why Hilgemann emphasizes savings of 'at least' 17.65% with an HSA, since individuals in higher tax brackets can save much more by avoiding income tax. Today, earners above USD 578,125 are subject to the highest marginal federal income tax rate of 37%.
To use an HSA as a retirement savings vehicle, people must be enrolled in a high-deductible health plan (HDHP) with USD 1,500 for self-only coverage or USD 3,000 for family coverage. Like flexible spending accounts (FSAs), HSAs allow pre-tax contributions from paychecks to fund healthcare costs. But unlike FSAs, HSAs lack a 'use it or lose it' provision and are therefore more nimble and able to accommodate different life stages.
A key component of an HSA besides the triple-tax savings is its flexibility throughout a person's life. At some point in life, 'Every American is going to be a spender or a saver for healthcare needs,' says Kevin Robertson, senior vice president and chief revenue officer of HSA Bank. This adaptability enables individuals to build strong tax-free retirement savings. It takes getting used to paying for healthcare out of pocket until you hit the deductible each year, but the long haul is worthwhile.
A.O. Smith employees with short-term healthcare costs can use HSAs to build tax-free retirement savings. Notably, the funds are tax-free if used for qualified medical expenses. Since medical bills likely will remain in retirement, HSAs provide a separate source for those expenses. A 65-year-old retired couple would need about USD 315,000 to cover healthcare in retirement by 2022, according to Fidelity.
And remember that medical expenses need not accompany withdrawals. Keeping digital copies of medical expense receipts over the years lets people withdraw funds tax-free in the future. For example, if you have 20 years of medical expenses saved and want to take a big vacation in retirement, you can take USD 15,000 out of your HSA and use the saved receipts to make the withdrawal tax-free.
Such reimbursement is simple and does not involve long bureaucratic processes or expense submissions. Kevin Robertson says, 'It's all self-substantiated. So it's between you and the IRS so long as you have receipts to support your claims if you get audited.'
In summary, rising maximum HSA contributions offer an excellent opportunity for A.O. Smith employees to take full advantage of their retirement savings. The triple-tax advantage HSAs provide may help them outperform traditional retirement accounts. Enrolled in a high-deductible health plan, people can take advantage of HSAs' flexibility throughout life. With short-term healthcare costs managed, individuals build tax-free retirement savings and allocate funds to cover medical costs. Withdrawals are tax-free and saved receipts can be used later, making HSAs appealing to long-term savers. Consider the huge benefits and potential savings HSAs can offer as retirement nears.
Financial coach Blake Hilgemann says an HSA is at least 17% better than a 401(k) because it offers different tax advantages. But new research from the Investment Company Institute (ICI) adds another compelling factor: Higher healthcare costs in retirement. Age increases healthcare costs, and retirees aged 65 and over pay far more than younger people for healthcare, according to the ICI's study published in May 2023. This finding supports the use of HSAs as retirement savings — a dedicated tax-free source to help pay for these rising healthcare costs later in life.
A high-powered engine in an HSA will crank out your retirement savings, and a 401(k) is a reliable car. Just picture it this way: A dollar you spend on an HSA is worth at least 17.65% more than a turbocharger. It means the dollar is equivalent to USD 1.18 in a 401(k). You get triple tax advantages with an HSA — just like you get in a top sports car with great acceleration, handling, and efficiency. You get tax-deductible contributions, tax-free investment growth, and tax-free withdrawals for qualified medical expenses. Also — why take a regular ride when you can take an HSA on your way to a comfortable retirement?
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Sources:
1. Internal Revenue Service. 'Health Savings Account (HSA) Contribution Limits for 2024.' IRS, 2024, https://www.irs.gov/app/vita/content/00/00_10_005.jsp?level=a&utm_source=chatgpt.com . Accessed 25 Feb. 2025.
2. SmartAsset. 'HSA vs. 401(k): What's the Difference?' SmartAsset, Dec. 2024, https://smartasset.com/retirement/hsa-vs-401k-2?utm_source=chatgpt.com . Accessed 25 Feb. 2025.
3. Fidelity Investments. 'HSA Contribution Limits 2024 and 2025.' Fidelity Investments, 2024, https://www.fidelity.com/learning-center/smart-money/hsa-contribution-limits?utm_source=chatgpt.com . Accessed 25 Feb. 2025.
4. HealthEquity. 'HSA Contribution Limits 2024.' HealthEquity, 2024, https://healthequity.com/hsa-contribution-limits?utm_source=chatgpt.com . Accessed 25 Feb. 2025.
5. Investopedia. 'Investing in Your HSA vs. Your 401(k).' Investopedia, 2022, https://www.investopedia.com/investing-in-hsa-vs-401k-5272337?utm_source=chatgpt.com . Accessed 25 Feb. 2025.
How does Merck's new retirement benefits program support long-term financial security for employees, particularly regarding the changes to the pension and savings plans introduced in 2013? Can you elaborate on how Merck's commitment to these plans is designed to help employees plan for retirement effectively?
Merck's New Retirement Benefits Program: Starting in 2013, Merck introduced a comprehensive retirement benefits program aimed at providing all eligible employees, irrespective of their legacy company, uniform benefits. This initiative supports Merck's commitment to financial security by integrating pension plans, savings plans, and retiree medical coverage. This approach not only aims to help employees plan effectively for retirement but also aligns with Merck’s post-merger goal of standardizing benefits across the board.
What are the key differences between the legacy pension benefits offered by Merck before 2013 and the new cash balance formula implemented in the current retirement program? In what ways do these changes reflect Merck's broader goal of harmonizing benefits across various employee groups?
Differences in Pension Formulas: Before 2013, Merck calculated pensions using a final average pay formula which typically favored longer-term, older employees. The new scheme introduced a cash balance formula, reflecting a shift towards a more uniform accumulation of retirement benefits throughout an employee's career. This change was part of Merck's broader strategy to harmonize benefits across various employee groups, making it easier for employees to understand and track their pension growth.
In terms of eligibility, how have Merck's pension and savings plans adjusted for years of service and age of retirement since the introduction of the new program? Can you explain how these adjustments might affect employees nearing retirement age compared to newer employees at Merck?
Adjustments in Eligibility: The new retirement program revised eligibility criteria for pension and savings plans to accommodate a wider range of employees. Notably, the pension benefits under the new program are designed to be at least equal to the prior benefits for services rendered until the end of 2019, provided employees contribute a minimum of 6% to the savings plan. This adjustment aids both long-term employees and those newer to the company by offering equitable benefits.
Can you describe the transition provisions that apply to legacy Merck employees hired before January 1, 2013? How does Merck plan to ensure that these provisions protect employees from potential reductions in retirement benefits during the transition period?
Transition Provisions for Legacy Employees: For employees who were part of legacy Merck plans before January 1, 2013, Merck established transition provisions that allow them to earn retirement income benefits at least equal to their current pension and savings plan benefits through December 31, 2019. This ensures that these employees do not suffer a reduction in benefits during the transition period, offering a sense of security as they adapt to the new program.
How does employee contribution to the retirement savings plan affect the overall retirement benefits that Merck provides? Can you discuss the implications of Merck's matching contributions for employees who maximize their savings under the new retirement benefits structure?
Impact of Employee Contribution to Retirement Savings: In the new program, Merck encourages personal contributions to the retirement savings plan by matching up to 6% of employee contributions. This mutual contribution strategy enhances the overall retirement benefits, incentivizing employees to maximize their savings for a more robust financial future post-retirement.
What role does Merck's Financial Planning Benefit, offered through Ernst & Young, play in assisting employees with their retirement planning? Can you highlight how engaging with this benefit changes the financial landscapes for employees approaching retirement?
Role of Merck’s Financial Planning Benefit: Offered through Ernst & Young, this benefit plays a critical role in assisting Merck employees with retirement planning. It provides personalized financial planning services, helping employees understand and optimize their benefits under the new retirement framework. Engaging with this service can significantly alter an employee’s financial landscape by providing expert guidance tailored to individual retirement goals.
How should employees evaluate their options for retiree medical coverage under the new program compared to previous offerings? What considerations should be taken into account regarding the potential costs and benefits of the retiree medical plan provided by Merck?
Options for Retiree Medical Coverage: With the new program, employees must evaluate both subsidized and unsubsidized retiree medical coverage options based on their age, service length, and retirement needs. The program offers different levels of company support depending on these factors, making it crucial for employees to understand the potential costs and benefits to choose the best option for their circumstances.
In what ways does the introduction of voluntary, unsubsidized dental coverage through MetLife modify the previous dental benefits structure for Merck retirees? Can you detail how these changes promote cost efficiency while still providing valuable options for employees?
Introduction of Voluntary Dental Coverage: Starting January 2013, Merck shifted from sponsored to voluntary, unsubsidized dental coverage through MetLife for retirees. This change aligns with Merck’s strategy to promote cost efficiency while still providing valuable dental care options, allowing retirees to choose plans that best meet their needs without company subsidy.
How can employees actively engage with Merck's resources to maximize their retirement benefits? What specific tools or platforms are recommended for employees to track their savings and retirement progress effectively within the new benefits framework?
Engaging with Merck’s Retirement Resources: Merck provides various tools and platforms for employees to effectively manage and track their retirement savings and benefits. Employees are encouraged to utilize resources like the Merck Financial Planning Benefit and online benefit portals to make informed decisions and maximize their retirement outcomes.
For employees seeking additional information about the retirement benefits program, what are the best ways to contact Merck? Can you provide details on whom to reach out to, including any relevant phone numbers or online resources offered by Merck for inquiries related to the retirement plans?
Contacting Merck for Retirement Plan Information: Employees seeking more information about their retirement benefits can contact Merck through dedicated phone lines provided in the benefits documentation or by accessing detailed plan information online through Merck's official benefits portal. This ensures employees have ready access to assistance and comprehensive details regarding their retirement planning options.
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