What happens to funds once you retire?

public sector employees retire

If you have a pre-tax account and retirement is on the horizon, you’ll want to understand what happens to the funds in your account(s) once you retire.

Depending on which pre-tax account you have, the treatment of your funds will vary. We’ve written about Health Savings Accounts and retirement in other blogs (like this one or this one) so for this piece, we’ll be focusing on two other, less common accounts: Health Reimbursement Accounts (HRAs) and HRA VEBAs.

What happens to funds once you retire?

Funds in an HRA

An HRA plan is set up by your employer; they determine the treatment of funds. This includes what happens to funds once you retire. There are three standard options most employers choose to implement.

Spend Down with No Time Limit

The first option employers may allow is for employees who have retired to spend down their remaining HRA balance during retirement. There is no deadline for when employees must use the funds. This differs from the second option…

Spend Down with a Time Limit

Some employers may choose to give employees the option to spend down their funds during retirement, but the full balance must be spent within a certain window. Given the flexibility of HRAs, employers have a wide range of dates to choose from: 5 years, 10 years, etc.

Finally, the last option employers offer is more of a use-it-or-lose-it approach.

Forfeiture of Funds

Many employers choose to make an HRA “use it or lose it” when it comes to retirement. In this case, employees have a run-out period to submit claims. The expenses have to be from the effective date in the plan up to and including the date of termination. Employees have through the run-out period to submit claims as stated in the Plan Highlights.

Once the run-out period ends, employees lose access to the funds, and any unspent balances are returned to the employer.

How do you know which model your employer offers?

The best way to find answers to question about your HRA is to check your Plan Highlights. These documents are available to you for free, 24/7 through the online BRiWeb portal if your plan is administered with Benefit Resource.

Funds in an HRA VEBA

Like an HRA, an HRA VEBA is set up by your employer. This means they organize how the funds are spent, including how they are spent in retirement.

Traditionally, an HRA VEBA is offered by employers in the public sector. The public sector often includes employers that work with union groups at schools and universities, fire fighters, and cities (to name a few). A few distinct advantages make HRA VEBAs an excellent retirement vehicle.

Different Rules Apply

While HRA VEBA funds are accessible in retirement, they are not viewed as qualified retirement plans and are not subject to the same rules as other retirement accounts, namely 401(k) and 403(b) plans.

Greater Freedom on Withdrawals

Because of the different rules, employees can withdraw funds from their HRA VEBA at any time for eligible expenses. Most notably, money can be withdrawn to pay for eligible expenses before the standard deadline (age 59) without a tax penalty.

If your employer offers an HRA or an HRA VEBA, we hope you found this overview of what happens to funds in retirement helpful. Want more information on these plans? Check out our blog page for additional articles.