Author Topic: HSA Contribution/Investment Advice  (Read 2884 times)

KzooKendrick

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HSA Contribution/Investment Advice
« on: April 07, 2014, 08:52:01 PM »
Hey Everyone!

I'm currently enrolled in a HDHP at work and my employer contributes $500/year + $300 in wellness benefits to my HealthHub/PayFlex HSA for a total of $800/year. The current maximum contribution (including employer contributions) is $3,300, which means I can contribute $2,500 tax free. As everyone knows, this means free of federal, state (I live in FL so no problems here), and FICA taxes, which for me equates to 22.65% (15% Fed, 6.2% SS, 1.45% Medicare). These savings are significant, and I don't think I want to pass them up!

In addition, there is a requirement that I keep $500 in the savings account in my HSA, but I can invest anything above this amount. Just something to keep in mind when running calculations.

Here are my questions:
1. There is an "investment fee" of $1.75/month or $21/year. Is this normal? Should I still look into investing the funds (as opposed to just keeping the dollars in their savings account at 0.25%)?

2. I've attached a picture of the available funds I can choose from - it's not the greatest selection, so I'm looking for some advice on which fund to invest in. The lowest ER I could find is 0.64%, but I'm assuming it may not necessarily mean this is the best fund overall.

3. Lastly, I haven't yet signed up to have deductions come out of my paycheck pre-tax, but I also haven't contributed anything above the $800 yet this year either. Can I only sign up for payroll deductions during open enrollment? (I have a feeling this question may be employer/plan dependent).

I'd appreciate some advice from some of you more experienced "workers" who may have used/currently use HSAs! Thanks!

Dezrah

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Re: HSA Contribution/Investment Advice
« Reply #1 on: April 08, 2014, 04:08:38 PM »
I also have an HDHP with an HSA, so I'll help with what I know at least.

Answers to your questions:

1. There is an "investment fee" of $1.75/month or $21/year. Is this normal? Should I still look into investing the funds (as opposed to just keeping the dollars in their savings account at 0.25%)?

My own HSA investment arm takes $2.90 per month.  I admit I don't know if either is normal but it feels reasonable to me.  We invest as much as we can.

Should you invest?  Here are some questions to consider for yourself:
Can you afford your plan's annual out-of-pocket maximum right now if the worst should happen?
Have you already maximized your other tax advantaged accounts (401k, IRA, etc)?
Are you fairly confident you won't be experiencing any "planned" major medical expenses (pregnancy, major dental work, carpal tunnel surgery, etc.) within the next 2-3 years?
Are you comfortable letting that investment ride the inevitable market downturn and keeping it there for the long term?

The more you answered "yes", the more I would suggest going ahead and investing.

2. I've attached a picture of the available funds I can choose from - it's not the greatest selection, so I'm looking for some advice on which fund to invest in. The lowest ER I could find is 0.64%, but I'm assuming it may not necessarily mean this is the best fund overall.

I'm not familiar with these individual stocks.  My own selection only had 9 out of 26 options with ERs less than 1.0 and of those only 2 had no front loads (they were Vanguard funds).  Don't use anything that carries a front load.  My strategy is to make a spreadsheet comparing historical performance and ERs and then using Excel's "conditional formatting" to see if any of the options jump out as a clear winner.  Please note that this does a poor job comparing risk.

3. Lastly, I haven't yet signed up to have deductions come out of my paycheck pre-tax, but I also haven't contributed anything above the $800 yet this year either. Can I only sign up for payroll deductions during open enrollment? (I have a feeling this question may be employer/plan dependent).

My employer had the option of signing up for payroll deductions at any time.  FSAs are legally limited only to open enrollment but this is not the case with HSAs.  If your employer has their own rules about limiting to open enrollment, go ahead and contribute with post-tax money anyway; when you file your taxes, HSA contributions are considered an "above the line" item meaning you don't have to itemize your deductions to get back your refund.  Also, SS tax is based on gross pay, not AGI, so you really won't see that 6.2% saving.

Rural

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Re: HSA Contribution/Investment Advice
« Reply #2 on: April 08, 2014, 05:56:24 PM »
My place has a monthly fee about the same as yours unless the balance in cash(not invested) is over $2500. This year, however, my employer started covering the fees for everyone.


The investment options for mine rather stink-- high expense ratios which to my mind are worse than flat fees. Perhaps someone who knows more will chime in here, but I don't think we have to keep the investment portion with our employer's choice of HSA services (though we should keep it in an HSA). It's time I should be looking into this, actually.


It does depend on the employer, but I can (and have) adjust HSA witholdings anytime. Just can't change away from the HDHP, not that I'd want to.

jpo

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Re: HSA Contribution/Investment Advice
« Reply #3 on: April 08, 2014, 06:34:32 PM »
I also have the monthly investment fee. I think most of the HSA investment accounts do, unfortunately.

For signing up for HSA payroll deductions, I suggest you do if you are going to contribute: http://www.mrmoneymustache.com/forum/investor-alley/hsa-tax-question/

clarkm04

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Re: HSA Contribution/Investment Advice
« Reply #4 on: April 08, 2014, 07:48:57 PM »
My wife has an HSA.  $2 / month.  $1000 in money market required.

Contributions can only be increased or decreased for her account in November for the following year.

Considering the huge upfront HSA tax advantages, the ER costs are a lower priority.  Her account has access to Vanguard funds which is nice.  Even if it had shitty ER, we would still max out.

Good luck!