contribution limits

Recently, Barron’s published a nice history of 401(k) plans titled “The 401(k) Is Turning 40. We Looked At The Good, The Bad And The Future.”

As someone who has worked for more than 30 years with thousands of 401(k) plans including those from some of the best companies in the world such as Apple, AT&T, IBM, John Deere and Northwestern Mutual, I get tired of hearing that 401(k) plans are broken.

They are not. Our approach to funding retirement needs to evolve in response to changes in our economy and culture.

The article suggests that auto-portability and Multiple Employer Plans (MEPs) are good ideas to help address perceived deficiencies in existing 401(k) plans. They are but truly, these — and most other ideas — will have limited impact. Congress needs to act now and address the major threat to a secure retirement that didn’t exist 40 years ago when 401(k) plans were created: health care.

The major threat to your secure retirement: Health care

The average retired couple today can expect to spend $280,000 on health care. Where does that money come from now? A substantial amount is taken from 401(k) plans.

Most retirees 40 years ago enjoyed continued health care coverage from their employers, in addition to Medicare. You would be hard-pressed today to find many employers who offer retiree health care benefits.

HSAs: One potential solution

A solution to the health care threat is expanding the HSA contribution limits. Workers are provided access to Health Savings Accounts (HSAs) if their employer offers a High Deductible Health Plan (HDHP).

Although not intentionally designed to do so, these triple-tax-free accounts can be used in concert with 401(k) plans and IRAs to provide an effective approach to funding nearly every American’s retirement. Many workers who don’t have access to 401(k) plans do have access to HSAs.

A lot of people get HSAs confused with FSAs (Flexible Spending Accounts). FSAs have a use-it-or-lose-it provision — you have to spend everything you contribute to an FSA in a particular year or you will forfeit those dollars. HSAs do not have that requirement.

If you have dollars remaining in your HSA when you retire, you can carry that balance forward into retirement and use it to pay Medicare premiums, long-term care insurance premiums, COBRA premiums, prescription drug costs, dental expenses and, of course, any co-pays, deductibles or co-insurance amounts for you or your spouse.

The problem: Current HSA contribution limits too low

Maximum annual HSA contribution limits (employer plus employee) for 2019 are modest –$3,500 per individual and $7,000 for a family. An additional $1,000 in catch-up contributions is permitted for those age 55 and older.

Proposals have been made to increase the amount of allowable contributions and make usage more flexible. Hopefully, they will be seriously considered by Congress.

Time for Congress to act

There doesn’t appear to be an end in sight to rising health care costs. As a consequence, studies show more retirees are likely to be bankrupted by high health care expenses.

Currently, American workers have only one tax-preferenced way they can save for retiree health care expenses — HSAs. But the contribution limits are way too low. Why not increase HSA contribution limits to the same level as 401(k) limits ($19,000 for 2019 plus $6,000 in catch-up contributions)?

It’s time for Congress to act to help American workers by raising HSA contribution limits significantly.


About the Author

Robert C. Lawton, AIF, CRPS is the founder and President of Lawton Retirement Plan Consultants, LLC. Mr. Lawton is an award-winning 401(k) investment adviser with over 30 years of experience. He has consulted with many Fortune 500 companies, including: Aon Hewitt, Apple, AT&T, First Interstate Bank, Florida Power & Light, General Dynamics, Houghton Mifflin Harcourt, IBM, John Deere, Mazda Motor Corporation, Northwestern Mutual, Northern Trust Company, Trek Bikes, Tribune Company, Underwriters Labs, and many others. Mr.Lawton may be contacted at (414) 828-4015 or

About Lawton Retirement Plan Consultants, LLC

Lawton Retirement Plan Consultants, LLC (LRPC) is a Milwaukee, Wisconsin-based independent, objective Registered Investment Adviser (RIA) providing investment advisory, fiduciary compliance, employee education, provider management and plan design services to employer retirement plan sponsors. The firm specializes in Socially Responsible Investment (SRI) strategies for retirement plans and is a pioneer in the field. LRPC currently has contracts in place to provide consulting services on nearly a half billion dollars in plan assets. For more information, please contact Robert C. Lawton at (414) 828-4015 or or visit the firm’s website at Lawton Retirement Plan Consultants, LLC is a Wisconsin Registered Investment Adviser.

Important Disclosures

This information was developed as a general guide to educate plan sponsors and is not intended as authoritative guidance, tax, legal or investment advice. Each plan has unique requirements and you should consult your attorney or tax adviser for guidance on your specific situation. In no way does Lawton Retirement Plan Consultants, LLC assure that, by using the information provided, a plan sponsor will be in compliance with ERISA regulations. Investors should carefully consider investment objectives, risks, charges, and expenses. The statements in this publication are the opinions and beliefs of the commentator expressed when the commentary was made and are not intended to represent that person’s opinions and beliefs at any other time. The commentary does not necessarily reflect the opinion of Lawton Retirement Plan Consultants, LLC and should not be construed as recommendations or investment advice. Lawton Retirement Plan Consultants, LLC offers no tax, legal or accounting advice, and any advice contained herein is not specific to any individual, entity or retirement plan, but rather general in nature and, therefore, should not be relied upon for specific investment situations. Lawton Retirement Plan Consultants, LLC is a Wisconsin Registered Investment Adviser and accepts clients outside of Wisconsin based upon applicable state registration regulations and the “de minimus” exception.