Business owners planning for the succession of their company have a lot on their mind. They must select from the myriad of options available to them for transferring ownership. They must plan for the continued operation of the firm. They have literally hundreds, if not thousands, of decisions to make.
So, it is not surprising that many have not taken the time to prepare for health insurance coverage after they retire. That can be a major surprise when they find their options are limited, and many times expensive. Advisors can help business owners ensure both their personal and business needs are being addressed during succession planning.
Health care options
- If the business owner is age 65 or over they can enroll for coverage through Medicare. They may also consider purchasing a Medicare Supplement policy to provide more comprehensive coverage.
- For those close to age 65 (generally age 63 ½ or older) they can continue their prior group coverage under COBRA continuation. Then upon attaining age 65 they can enroll in Medicare and consider purchasing a Medicare Supplement policy.
- Those younger than 63 ½ can take COBRA for the first 18 months following termination of employment. They then can look to the insurance exchanges created under the Affordable Care Act to determine what options are available to them.
Regardless of approach, there will generally be premiums that need to be paid. In addition, there will be deductibles, copayments, and coinsurance that will not be reimbursed by insurance to consider. This all needs to be factored in as part of their succession and retirement planning efforts.
Benefits of an HSA
A Health Savings Account (HSA) can be useful to accumulate funds while working for post-retirement healthcare needs. These triple tax advantaged plans (money goes in pretax, can accumulate tax free, and is not taxed if used for qualified medical expenses) are available to most companies. Funds can be contributed by the firm, the individual, or both.
HSAs can be used to pay current healthcare expenses or carried forward into retirement. The funds can be used to reimburse qualified health care expenses (see I.R.S. Publication 502) and some premiums. This includes COBRA and Medicare premiums (please note that they cannot be used for Medicare Supplement premiums).
The longer owners participate in an HSA, the more they can accumulate. Yet, many business owners are unaware of the HSA option. Learn more about HSAs at: https://principalfunds.postclickmarketing.com/ValueAdd-HSA
How can you help?
Create a retirement readiness mindset by focusing on:
- Benefit design that encourages saving and managing assets for retirement
- Ongoing education that’s easy to understand
- Tailored, personalized communication
- Real-time view of retirement
- Overall financial wellness approach
HSA’s are a great opportunity to help your client’s retirement benefits strategy by helping save money and save for retirement.
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This document is intended to be educational in nature and is not intended to be taken as a recommendation.
The subject matter in this communication is educational only and provided with the understanding that Principal® is not rendering legal, accounting, investment advice or tax advice. You should consult with appropriate counsel or other advisors on all matters pertaining to legal, tax, investment or accounting obligations and requirements.