Rising Borrowing Rates of the US Treasury and Huge Potential Changes for HSAs
By: Kevin Dombrowski
As of 7/31/18
Past performance is not an indication, prediction or guarantee of future results.
Weekly Update
Stocks were roughly flat this week, despite lots happening. Apple made Wall Street history when it became the first publicly traded company to reach a market value of $1 trillion this week. Fidelity announced that it will launch two free index funds, the first fund company to ever do so. The US turned up the heat on China and threatened to more than double the proposed tariffs on imports while Congress passed a defense bill designed to restrict Beijing’s economic and military activity, and the Fed held interest rates steady.  

U.S. Treasury ramping up its borrowing
Rising federal budget deficits are forcing the U.S. Treasury to ramp up its borrowing. This increase in borrowing has been 63% higher than what it borrowed during the same six-month period last year. As a result, yields were driven up to near 10-year-highs. 

Expect the Treasuries to continue to sell two-year, three-year, and five-year notes to help fund the government as deficits continue to widen from an increase in spending. Making matters worse, in addition to increased spending forecasts for the federal government, there are concerns about lower tax revenue, especially in the short term.

What does this mean for investors? Expect the possibility of higher borrowing costs as well as potentially increasing level of inflation in the coming years. What can investors do? Work with a trusted financial professional to ensure your portfolio is appropriately diversified and suited to combat inflation.

Health Saving Accounts – a Future Gamechanger?
Recently, the House of Representatives passed new legislation that would make changes to health savings accounts (HSAs), most importantly increasing the amount of annual tax-deferred contributions that can be made to these accounts. Just how large? For 2018, the annual maximum HSA contribution is $3,450 for an individual and $6,850 for a family. The proposed legislation would increase the max to $6,650 for an individual and $13,300 for a family. 

The passage of this bill would help individuals and families meet the out-of-pocket maximums that many high-deductible health plans have. 

If your company provides an option for you to stash cash away into an HSA, there are significant benefits to contributing. Why? Here are a few reasons:
  1. HSA contributions are made on a tax-deferred basis
  2. After you contribute, you may be able to invest your funds in a variety of investment options, similar to a 401(k)
  3. HSA withdrawals for qualified healthcare expenses are tax-free
  4. HSA funds carry over from year to year, ideally leaving you with a sizeable account over time
  5. Under current tax regulations, once you turn 65, you can withdraw funds penalty free for anything. If the funds are used for qualified medical expenses, they also are not subject to ordinary income tax.
  6. It can be utilized to supplement traditional retirement vehicles such as an IRA or 401(k).

With healthcare costs skyrocketing, the average 65-year-old couple can expect to spend $275,000 on healthcare expenses throughout their retirement. By maxing out your contributions to your HSA, you may be better prepared for these potential expenses.
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