Over the Labor Day weekend, President Obama, noting that millions of Americans do not have enough savings to cover their retirement, announced a package of initiatives to spur increased savings.
He suggested four administrative actions, which do not require new legislation from Congress, intended to make it easier and more automatic for people to put money into tax-advantaged retirement accounts.
The four new initiatives, all of which are based on new behavioral research on ways to encourage people to save in a systematic way, included:
- Automatic enrollment plans, whereby employees would be automatically signed up for their 401K unless they explicitly ask not to participate.
- Instructions to the Internal Revenue Service to allow people to check a box on their tax returns to receive their tax refunds in the form of United States savings bonds.
- Making it easier for employees to contribute the money for unused vacation time and overtime to their retirement accounts.
- Publishing an easy-to-read guide to help people understand the arcane rules governing retirement plans when people change jobs.
I have a fifth idea.
Encourage people to buy a qualified health insurance plan and open and fund a Health Savings Account (HSA).
The HSA, created in 2004 is a tax-advantaged medical savings account available to taxpayers in the United States who are enrolled in a High Deductible Health Plan (HDHP). The funds contributed to the account are not subject to federal income tax at the time of deposit and unlike a flexible spending account (FSA), funds roll over and accumulate year over year if not spent. Funds can be withdrawn tax-free to pay for qualified medical expenses.
Best of all, withdrawals for non-medical expenses are treated very similarly to those in an IRA in that they are treated as normal income if taken after retirement age.
So, why not solve two problems at once, encourage people to select an affordable health insurance plan and then take advantage of the opportunity to save money for future medical expenses and retirement.
I also have some ideas about allowing anyone who has health insurance coverage to open an HSA, but I will save that for another time.