posted on: 6/6/2007    revised: 3/9/2010

One investment firm mid-west is using Health Savings Accounts to enhance the appeal of selling agricultural futures contracts. For example, a grain farmer might receive cash $5000 now for a promise to sell grain in the future at today’s price. The $5000 is placed in an HSA rather than being paid out in cash to the farmer. HSAs are tax deductible, so this $5000 tax deduction offsets the effect of the $5000 income to the farmer. This sounds great so far. Still, I became suspicious of the effort to link the two otherwise unrelated products to enhance sales, despite the possible useful benefits of each of these products.

The decision of whether to sell futures on production is a complicated issue for farm businesses that should not be taken lightly. It seems obvious that farmers do not need another complicating factor entering into their decision-making process.

The decision to fund a Health Savings Account is a separate an unrelated issue from a financial planning perspective. Presumably this brokerage firm is using options proceeds to fund the HSA for clients who did not previously take the initiative to fund a HSA this year. This raises suspicion. If the client had no strong interest in an HSA before writing futures contracts, why would this change because of the sudden availability of cash?

Suppose the client did want an HSA but did not have access to an extra few thousand dollars and the futures contract suddenly makes cash available? In this case, putting the contract sales proceeds into an HSA keeps the funds under the brokerage firm’s control in a longer term investment would not likely have been the client’s first choice. www.Healthsavingsaccount-hsa.com,  a Web site that tracks trends in the HAS industry, says that most HSAs are held in interest bearing savings accounts with a bank. Firms that offer no-fee bank accounts with debit cards are the most popular custodians. The majority of money deposited in Health Savings Accounts is withdrawn within a year. For most people, investment accounts do not make sense.

The bottom line is that both futures contract and Health Savings Accounts can be valuable financial planning tools for farmers, but the only party who benefits from linking the two is the brokerage firm selling the products.

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Copyright 2010 by Tony Novak. Originally produced and published for the "AskTony" column syndication prior to 2007. Edited and independently republished by the author in March 2010. All rights reserved.