How an HSA can help Canadian employees achieve their retirement goals
When it comes to planning for retirement, Canadians often rely on a mix of savings, investments, and government benefits. As an employer, you may want to help with their savings and set them up for the future.
A Group RRSP sounds great, but that’s a lot to spend in addition to a health benefits plan.
So, should you skip out on the health and dental then? What about those who want to put their health first?
Introducing the magical Blendable HSA Rollover
The Blendable HSA Rollover is a combination of:
HSA Rollback
An HSA Rollback is a Health Spending Account (HSA) that allows employees to pay for out-of-pocket medical expenses with pre-tax dollars.
This includes expenses like massages, dental care, and physiotherapy. As it is often included as part of a benefits package and used to cover healthcare expenses, it’s also a powerful tool when structured correctly to help achieve retirement goals.
Group RRSP
A Registered Retirement Savings Plan (RRSP) is an account where funds grow tax-free until withdrawn.
By combining these two features, one contribution can help employees both now and in the future. It means you can support employees equally – whether they need funds to cover medical expenses now or prefer to start squirreling money away for their retirement dreams. It’s the best of both worlds!
Advantages of an HSA Rollover
So why is this solution such a game-changer? Let’s look at what it can provide:
- Tax Efficiency: Funds contributed to the HSA are tax-deductible for the employer and tax-free for the employee. When any funds are invested in the RRSP, employees benefit from tax-deferred growth. They won’t pay tax on the contributions or growth until they withdraw funds in retirement (when they are likely to be in a lower tax bracket).
- Retirement confidence: In Canada, only 53% of Canadians are confident they are saving enough for retirement (source: Canada Life, 2022 Retirement Confidence Survey). Providing an opportunity to save through employee benefits can alleviate that stress, making happier, healthier employees.
- Flexibility: Funds in an HSA can be used to reimburse a lengthy list of healthcare expenses without any per-service or category limits. It means that contributions can be more impactful than coverage through a premium-based health benefits plan.
- Cost control: As we said at the start, group benefits costs can get out of hand as you add more features. By combining an HSA and RRSP into one budget item, you can keep costs under control. And because it’s contribution-based, decisions about when to increase those costs are in your hands as the employer.
Let’s put it to the test!
Scenario 1:
Alex is a hard-working family man of 3. His employer provides him with an HSA Rollover that is paired with all the necessary Peace of Mind solutions, such as Life & Disability. Each year, unused contributions are contributed to the Group RRSP.
- Annual Medical Expenses: $4,000
- Employer Contribution: $5,000/year
- HSA Utilization: Alex uses $4,000, leaving $1,000 unused
- $1,000 is contributed to Alex’s Group RRSP each year
Let’s assume an average annual return of 6% on the annual $1,000 contributions. The compounding effect of these contributions over time helps Alex’s savings grow steadily. Here's the breakdown of how this plays out:
