Author Topic: Max out HSA or buy more VTSAX?  (Read 1376 times)

greggieP3

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Max out HSA or buy more VTSAX?
« on: March 01, 2017, 12:09:55 PM »
Hoping for some advice here. My employer offers a health plan with an HSA, with the caveat that the bank managing the employee contributions keeps the money in a savings account that only returns about 0.5% per year.

For context, I currently contribute the maximum allowed $18,000 per year to my 403(b) and $5,500 to my Roth IRA. So, my two options are:

-reduce my tax burden by $3,400 for the year
-purchase roughly an additional $2,500 of VTSAX

If the HSA custodian would allow me to choose Vanguard Index funds for my contribution, as recommended in an article by the Mad Fientist, this would be a no brainer.

However, as the money is essentially just sitting there, is reducing my tax burden worth missing out on the return I'd potentially receive from buying more VTSAX?

Thanks for the help!

BigHaus89

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Re: Max out HSA or buy more VTSAX?
« Reply #1 on: March 01, 2017, 12:16:31 PM »
Talk to your HR person. I (thought) I was in a similar position as you with my HSA. However, it turned out that I was able to open an HSA account on my own(Health Savings Administrators) and transfer money from my employer-sponsored HSA into the HSA account that I could invest in VTSAX.  I just keep a small amount in the one my employer contributes to.

greggieP3

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Re: Max out HSA or buy more VTSAX?
« Reply #2 on: March 01, 2017, 12:26:32 PM »
Awesome, thanks! I'll definitely see if they will let me do that.

When you did this, were you able to make the transfer automatic, or was it something you had to manually do each month, quarter, year, etc.?

MDM

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Re: Max out HSA or buy more VTSAX?
« Reply #3 on: March 01, 2017, 01:01:50 PM »

Proud Foot

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Re: Max out HSA or buy more VTSAX?
« Reply #4 on: March 01, 2017, 02:29:59 PM »
.....

-reduce my tax burden by $3,400 for the year
-purchase roughly an additional $2,500 of VTSAX

......

However, as the money is essentially just sitting there, is reducing my tax burden worth missing out on the return I'd potentially receive from buying more VTSAX?

Thanks for the help!

I would always go for reducing taxes.  Do you have any recurring medical costs?  If so you could just pay for them with your HSA and invest the same amount into your taxable account.  You still get the tax savings and still get your investment growth.  It's not at tax beneficial as investing your HSA money but you would need to decide if the work to transfer HSA funds to a different bank to invest is worth the tax savings.

BigHaus89

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Re: Max out HSA or buy more VTSAX?
« Reply #5 on: March 01, 2017, 03:07:50 PM »
Awesome, thanks! I'll definitely see if they will let me do that.

When you did this, were you able to make the transfer automatic, or was it something you had to manually do each month, quarter, year, etc.?

You can set up transfers at whatever frequency you want. I just do it manually whenever the HSA balance in the non-invested account gets too high.

Indexer

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Re: Max out HSA or buy more VTSAX?
« Reply #6 on: March 01, 2017, 04:38:56 PM »
I'm going to take it a step further.

Quote
I currently contribute the maximum allowed $18,000 per year to my 403(b) and $5,500 to my Roth IRA. So, my two options are:

-reduce my tax burden by $3,400 for the year
-purchase roughly an additional $2,500 of VTSAX

The order should be:
1. contribute to 401k enough to get match.
2. HSA goes here!!!
3. max out 401k.
4. Roth.
5. taxable= VTSAX.

The HSA is tripled tax advantaged. It is arguably better than a 401k or Roth, but obviously you want your 401k match, that's free money.

BlueMR2

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Re: Max out HSA or buy more VTSAX?
« Reply #7 on: March 01, 2017, 06:04:48 PM »
I went for maxing out the HSA before buying more taxable VTSAX.  I know I'll need the healthcare money down the road, I have good Vanguard funds available in my HSA plan, and it's like getting "mo' free money" maxing it out!

greggieP3

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Re: Max out HSA or buy more VTSAX?
« Reply #8 on: March 02, 2017, 10:47:47 AM »
Thanks a ton to everyone who has responded. You've all been very helpful!

The article MDM linked to was very informative, and I appreciate everyone's input.

And to answer a couple points that were raised, I luckily don't have any recurring medical costs at this time, and my employer unfortunately doesn't contribute to employees' accounts until they've worked there for year :(

That said, their contribution is an automatic (regardless of employee contribution) 8.5%, which rises to 9.5% after 5 years and 10.5% after 10, if you stay that long. My previous employer offered only a 3.5% match, so this is definitely worth it in my book.

Off to look into opening my own HSA...