Your Health Spending Account – Are You Maximizing the Benefits?
February 26, 2021
You might have read the recent announcement in UFV Now (sent to your email inbox on February 22) about UFV being named, once again, as one of BC’s Top Employers.
For at least the third year in a row, one of the reasons cited for the award is the Health Spending Account, an annual entitlement of up to $1,000 that permanent employees can use to defray medical and dental expenses beyond what is covered in the extended health and dental plans:
Type A and Type B employees are entitled to access up to $1000 under the UFV Health Spending Account (HSA). The HSA is pro-rated for less than 100% Type A or Type B employees. [Article 28.5]
You can find more details about how to claim your HSA at https://www.ufv.ca/hr/compensation-benefits/health-spending-account/
Did you know, however, that you can contribute all or a portion of your Health Spending Account to your retirement savings? Every year in March, you are invited to transfer all or a portion of your HSA to a registered retirement savings plan (RRSP). If you elect to do so, the transfer occurs in your final paycheque of the calendar year.
So, which option should you choose?
Every year in March, we’re asked to elect whether to keep our HSA entitlement for medical and dental expenses not covered by our employer-paid benefits (a non-taxable), or to transfer all or a portion of it to an RRSP. As an RRSP contribution it becomes a taxable benefit; however, because the amount you contribute to an RRSP reduces your taxable income by that same amount, you don’t actually pay taxes on the RRSP contribution until you withdraw it as retirement income.
If you or your dependents routinely have large medical expenses [1], keeping that money in your HSA to help defray those costs makes good sense. You'll help keep more money in your pocket at a time when you might really need it. But if you don’t routinely use the full amount, or you use it to cover relatively small expenses over time, it might be more beneficial to transfer it into an RRSP, and here’s why...
Let’s say you're 45 years old, and you invest that $1,000 at an annual rate of 3%. At age 65, that $1,000 will be worth $1,806.11, a return of almost double your investment. Now let's say you continued to invest your $1,000 HSA into your RRSP each year; by the time you retire, you would have $26,870.37 with a potential annual income of $1,806.11 (assuming you live to age 85) [2].
Your HSA has just become a valuable investment tool, with very little (or no) cost to you. And the income from it can be used to pay for health insurance in your retirement.
[1] HSA claims must be at least $250 unless you are claiming the balance of your account or it is the end of the fiscal year. This may require that you hold on to receipts until you have enough to file a claim.
[2] I used the RRSP savings calculator at https://www.getsmarteraboutmoney.ca/calculators/rrsp-savings-calculator/ to figure this out.
Colleen Bell,
Chief Negotiator
