Author Topic: Don't know what to do with the HSA  (Read 4879 times)

Unique User

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Don't know what to do with the HSA
« on: June 03, 2014, 04:09:36 PM »
Have $7,800 in it, $487.50 goes in each month.  Only a couple index funds available and some targeted funds available through Cigna, plus JP Morgan charges $10 per trade.  I was thinking of transferring $7k and just doing a couple trades a year to keep costs down.     

BlackRock Small Cap Index Fund - expense ratio .82%
BlackRock International Index Fund - expense ratio .55%
2025 Target Fund - Total Investment Expense Net 1.10%

We have an emergency fund to pay for any medical expenses so my gut tells me to just keep funding it and leave it alone since any gains would be tax free (I think).  The expense ratios seem high, but I just don't know what to do.  Ideas?

butchmonkey

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Re: Don't know what to do with the HSA
« Reply #1 on: June 03, 2014, 04:57:40 PM »
HSAs are usually portable.

So you can often transfer your funds into a low fee provider.

For a list of good providers see here :

http://whitecoatinvestor.com/choosing-an-hsa-provider/

(I ended up going with hsa bank and fee free etfs. )

You should call your provider to find the fees for rolling over your funds. Mine charged nothing if I didn't close the account. So I left 0.25$ in it!

For more on portability see:

http://www.milesdividendmd.com/portable-bliss/

This is yet another reason why HSAs are so incredible.

Good luck and don't despair.





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rmendpara

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Re: Don't know what to do with the HSA
« Reply #2 on: June 03, 2014, 06:12:58 PM »
See if you can transfer it to another provider. At the end of the day, the expense ratio doesn't really matter so long as the fund does not underperform it's benchmark.

Example 1: Fund A tracks Dow within 0.25%, and charges an annual fee of 0.43%.

Example 2: Fund B tracks Dow within 0.25%, and charges an annual fee of 3.0%.

Example 3: Fund C tracks Dow within 0.9%, and charges an annual fee of 0.1%.

As long as your initial investment keeps track with whichever benchmark/fund/whatever you choose, the expense ratio doesn't really matter.

Check to see, Yahoo finance will work, and compare charts of each fund to the benchmark indices and see how they performed. If they are tracking well, then the expense ratios don't matter. If they aren't, then you're paying for them to buy their new Porsche.

Don't get caught up in the nominal expense ratio. In my made up Fund C, the expense ratio is super low, but it is underperforming.

Concern yourself with performance first, then worry about finding the cheapest option. In any case, your HSA is most useful because you have an automatic return which is your effective tax rate, since you can withdraw them for health expenses and not pay taxes on the amount. So, likely at least 25%, maybe more?

butchmonkey

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Re: Don't know what to do with the HSA
« Reply #3 on: June 03, 2014, 07:14:09 PM »
If you can afford it I would recommend paying for all of your medical expenses out-of-pocket.

You can then redeem them at any point in the future tax free.

The massive advantage, is that your HSA will grow tax-free in the interim.

This is why the HSA is called the "stealth" IRA.


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clarkm04

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Re: Don't know what to do with the HSA
« Reply #4 on: June 03, 2014, 07:22:08 PM »
I think this article us pretty good at laying all the positives of HSAs. 
http://moneyover55.about.com/od/healthinsurance/a/Why-Fund-An-Hsa-Instead-Of-An-Ira-Or-401k.htm

Given its tax free contributions with tax free distributions including being social security exempt, unless the expense ratio is 7%, you'll come out ahead.  No other account is tax free on both ends.

Also, your account moves with you but in my experience you're locked into the provider your employer has for you while your at the company the HSA is offered through with their HDHP.  You can't switch providers or funds from the ones that are eligible with your account.

butchmonkey

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Re: Don't know what to do with the HSA
« Reply #5 on: June 03, 2014, 09:07:27 PM »
Definitely check on your specific HSA plan rules.

In my case I was able to move my entire balance (minus one dollar) from health equity to HSA bank with no penalty.

Fees of matter over time. A lot.

But I agree with Clarkem04 that even if you can't transfer your account, the HSA is too good to pass up.


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clarkm04

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Re: Don't know what to do with the HSA
« Reply #6 on: June 03, 2014, 09:15:40 PM »
Definitely check on your specific HSA plan rules.

In my case I was able to move my entire balance (minus one dollar) from health equity to HSA bank with no penalty.

Wow.  This is new info for me.  Were you able to do this while with the employer you opened the HSA through or after you left? 

For my wife's plan, she is stuck with her investment options.  It's not bad since there's Vanguard funds but the group still skims with management fees by fund and a $2 dollar monthly fee for maintains the overall account.


butchmonkey

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Re: Don't know what to do with the HSA
« Reply #7 on: June 03, 2014, 09:20:26 PM »
I did this with the company that currently employs me. And I did it about a month ago.

I don't know why, but HSAs seem to be much more portable than 401k's (where in-service withdrawals or rollovers are the exception.)

Definitely check with your wife's plan (and report back either way. )


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clarkm04

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Re: Don't know what to do with the HSA
« Reply #8 on: June 04, 2014, 08:16:40 AM »
I did this with the company that currently employs me. And I did it about a month ago.

Definitely check with your wife's plan (and report back either way. )

Looked into her plan last night.  Since they are making part of the contribution (500 for single; 750 for family) and paying to maintain the investment amount (3 dollars/mo), they restrict her to the company they use. 

My guess is we could move to another HSA provider, but then we lose these two huge advantages.  The provider they have isn't bad.  I have access to some great Vanguard funds and though the company charges around double for the expense ratio, the most expensive fund including ALL expenses is .45.

We use her HSA had an extra retirement account, so we have a separate slush fund set up to pay for medical expenses.

IMHO, given the premium break and low out of pocket max (4000) on her account, for any employee of her company if you are young or fit or can max out it's the cheapest way to go.

Cheers!


butchmonkey

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Re: Don't know what to do with the HSA
« Reply #9 on: June 04, 2014, 10:34:12 AM »
That sounds reasonable. If you have access to low cost index funds through her account there is no reason to roll it over.

For those who do not have such appetizing investment options one option is to front load the account, claim the match, and then roll over the account.  (What I did this year. )


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Unique User

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Re: Don't know what to do with the HSA
« Reply #10 on: June 04, 2014, 03:34:21 PM »
I'll have to check in portability, but thanks for the advice!  Company funds $750 of the annual amount so might be restricted.  We can easily pay medical expenses out of pocket, so will transfer to an investment and continue funding. 

SDREMNGR

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Re: Don't know what to do with the HSA
« Reply #11 on: June 04, 2014, 07:55:55 PM »
No matter how high the fees, it's pretty much always good to have HSA maxed out.  In addition to no federal and state income taxes, you also don't pay FICA taxes which is awesome!  Not even 401k and TIRAs are exempt from FICA taxes.  Only HSAs as far as I know. 

So for those tax exemptions alone, HSAs are worth maxing out.  Assuming you have 401k matching, the simple order of funding should be:

1. 401k to limit of employer matching.
2. HSA to limit
3. 401k to limit
4. Roth IRA or TIRA (TIRA if you want to mess with backdoor Roth conversions, Roth if you don't want the brain damage)
5. Taxable trading account

fmzip

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Re: Don't know what to do with the HSA
« Reply #12 on: June 05, 2014, 09:38:28 PM »
You can move your HSA funds as you please.

My wife has an HSA through Cigna. I take those funds and send them to a new account setup up with HSA administrators. HSA administrators offers a variety of Vanguard funds, all admiral shares to boot!


Call them and inquire, very easy to do

http://hsaadministrators.info/contact-health-savings-administrators