Author Topic: HSA Investment  (Read 2139 times)

ooeei

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HSA Investment
« on: November 04, 2015, 09:32:19 AM »
It's open enrollment time, and it looks like I'll be transferring to a HDHP with an HSA option with my employer.  I've read a few articles here and there about how HSAs can be a good investment vehicle, but am trying to decide if it's worthwhile for me.  Current annual $ situation:

Salary: $74k
401k Contributions: $18k
Roth IRA Contributions: $5.5k
Taxable Account Contributions: ~$10k
Marginal Tax Bracket: 25%

My HSA investment options can be found here: http://www.hsabank.com/hsabank/members/hsa-investments and are with either TDAmeritrade or DEVENIR.  I'm pretty sure I'd go with DEVENIR and the S&P 500 fund (.58% ER) for any investments. 

I'm looking for some help with the numbers on how worth it this will be compared to just putting the $ in a taxable account.  By my calculations I'll be deferring the 25% income tax on contributions and saving the 15% capital gains tax on gains (assuming I only remove the $ in qualified instances).  Since the ER of the DEVENIR is ~.50% more than my schwab index fund, it would take around 30 years for the extra ER to outweigh the taxes saved on the gains.  The contributions will still be hit with the extra ER as well, so that brings the timeline down significantly.  I guess I need to figure out a few potential scenarios and see where it ends up. 

Just from writing all of this out I'm thinking it's not worth it for the potential headaches of dealing with everything and what happens if I leave my employer.  Can I "roll over" my HSA balance to a lower cost provider?  Has anyone had experience with that?

ooeei

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Re: HSA Investment
« Reply #1 on: November 04, 2015, 10:03:34 AM »
Actually it looks like TDAmeritrade has a bunch of commission free ETFs, including VTI.  Might be worth it with that available.

Interest Compound

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Re: HSA Investment
« Reply #2 on: November 04, 2015, 11:12:55 AM »
Yes, the HSA is well worth it. When you leave your job you can roll it over to a better provider like Saturna, which lets you buy Vanguard funds for a fee of $24.95 a year, or Fidelity funds for $14.95 a year. Here's the breakdown:

Vanguard Mutual Funds
=========================
Cost per trade: $24.95
Admiral Shares: Yes (*without* meeting the minimum 10k requirement).
Dividend re-invest: no charge
Inactivity fee (no trade within calendar year): $12.50


Fidelity Mutual Funds
=========================
Cost per trade: $14.95
Admiral Shares: Yes* (but *will* need to meet 10k requirement). The new website will give you an error right away if the order doesn't meet the fund's minimum.
Dividend re-invest: no charge
Inactivity fee (no trade within calendar year): $12.50


ETF (Vanguard & Fidelity)
=========================
Cost per trade: $14.95
Dividend re-invest: $1
Inactivity fee (no trade within calendar year): $25

Source: https://www.bogleheads.org/forum/viewtopic.php?f=10&t=135513&start=50#p2526869

Fully fund the HSA each year with a single contribution, and your yearly fee will be either $14.95 or $24.95. Some people roll over their account yearly, which apparently is allowed even if you're still employed with the same company, definitely something to look into.

seattlecyclone

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Re: HSA Investment
« Reply #3 on: November 04, 2015, 11:24:56 AM »
By my calculations I'll be deferring the 25% income tax on contributions and saving the 15% capital gains tax on gains (assuming I only remove the $ in qualified instances).  Since the ER of the DEVENIR is ~.50% more than my schwab index fund, it would take around 30 years for the extra ER to outweigh the taxes saved on the gains.

I think you may be mistaken about how HSAs work. As long as you eventually have medical expenses, the tax on the money you put in isn't deferred, it's eliminated. This makes the HSA hugely advantageous over a taxable account even with expense ratios that are higher than Vanguard.

As to your question about rollovers, I believe you're allowed to roll over the balance from your employer-sponsored HSA to a different HSA at any time. With a lower balance it probably isn't worthwhile since each HSA provider seems to tack on some sort of extra fee to maintain the account, either a flat fee or by requiring you keep part of the balance in cash that doesn't earn much (if any) interest or by offering high expense ratio funds. After maxing it out for a year or two you may want to consider looking around for an alternate place to park the bulk of your HSA savings.

ooeei

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Re: HSA Investment
« Reply #4 on: November 04, 2015, 12:09:51 PM »
Yes, the HSA is well worth it. When you leave your job you can roll it over to a better provider like Saturna, which lets you buy Vanguard funds for a fee of $24.95 a year, or Fidelity funds for $14.95 a year. Here's the breakdown:

Vanguard Mutual Funds
=========================
Cost per trade: $24.95
Admiral Shares: Yes (*without* meeting the minimum 10k requirement).
Dividend re-invest: no charge
Inactivity fee (no trade within calendar year): $12.50


Fidelity Mutual Funds
=========================
Cost per trade: $14.95
Admiral Shares: Yes* (but *will* need to meet 10k requirement). The new website will give you an error right away if the order doesn't meet the fund's minimum.
Dividend re-invest: no charge
Inactivity fee (no trade within calendar year): $12.50


ETF (Vanguard & Fidelity)
=========================
Cost per trade: $14.95
Dividend re-invest: $1
Inactivity fee (no trade within calendar year): $25

Source: https://www.bogleheads.org/forum/viewtopic.php?f=10&t=135513&start=50#p2526869

Fully fund the HSA each year with a single contribution, and your yearly fee will be either $14.95 or $24.95. Some people roll over their account yearly, which apparently is allowed even if you're still employed with the same company, definitely something to look into.

Well after reviewing in the open enrollment, it turns out the documentation on fees they had was out of date. We now use Bank of America/Merrill Lynch.  You'd think a company with >50,000 employees would have the correct company in the literature they give out for open enrollment, but I think they're trying to fix it now that I let them know.  A quick google search shows a $100 annual fee... I'm following up to see if we get some sort of deal on it.  I've been doing some reading and apparently I may not be required to use the provider my employer gives me.  It seems that if I go that route I won't get the exemption from social security taxes (7%).  Assuming I contribute the max (3350), the 7% savings alone is over $200. 

I guess it still works out in my favor, I just don't like all of these fees, and who knows what other fees are lurking in the background.


I think you may be mistaken about how HSAs work. As long as you eventually have medical expenses, the tax on the money you put in isn't deferred, it's eliminated. This makes the HSA hugely advantageous over a taxable account even with expense ratios that are higher than Vanguard.

As to your question about rollovers, I believe you're allowed to roll over the balance from your employer-sponsored HSA to a different HSA at any time. With a lower balance it probably isn't worthwhile since each HSA provider seems to tack on some sort of extra fee to maintain the account, either a flat fee or by requiring you keep part of the balance in cash that doesn't earn much (if any) interest or by offering high expense ratio funds. After maxing it out for a year or two you may want to consider looking around for an alternate place to park the bulk of your HSA savings.

Yeah, I know there's the advantage for medical expenses, I just was looking at it more for the investment potential.  I generally have around $200-300 of copays and whatnot per year, so that's an instant $50-$75 tax savings.  It's good to know rollovers are allowed while still employed, that may be a viable option for the future.

Interest Compound

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Re: HSA Investment
« Reply #5 on: November 04, 2015, 12:21:33 PM »
Yes, the HSA is well worth it. When you leave your job you can roll it over to a better provider like Saturna, which lets you buy Vanguard funds for a fee of $24.95 a year, or Fidelity funds for $14.95 a year. Here's the breakdown:

Vanguard Mutual Funds
=========================
Cost per trade: $24.95
Admiral Shares: Yes (*without* meeting the minimum 10k requirement).
Dividend re-invest: no charge
Inactivity fee (no trade within calendar year): $12.50


Fidelity Mutual Funds
=========================
Cost per trade: $14.95
Admiral Shares: Yes* (but *will* need to meet 10k requirement). The new website will give you an error right away if the order doesn't meet the fund's minimum.
Dividend re-invest: no charge
Inactivity fee (no trade within calendar year): $12.50


ETF (Vanguard & Fidelity)
=========================
Cost per trade: $14.95
Dividend re-invest: $1
Inactivity fee (no trade within calendar year): $25

Source: https://www.bogleheads.org/forum/viewtopic.php?f=10&t=135513&start=50#p2526869

Fully fund the HSA each year with a single contribution, and your yearly fee will be either $14.95 or $24.95. Some people roll over their account yearly, which apparently is allowed even if you're still employed with the same company, definitely something to look into.

Well after reviewing in the open enrollment, it turns out the documentation on fees they had was out of date. We now use Bank of America/Merrill Lynch.  You'd think a company with >50,000 employees would have the correct company in the literature they give out for open enrollment, but I think they're trying to fix it now that I let them know.  A quick google search shows a $100 annual fee... I'm following up to see if we get some sort of deal on it.  I've been doing some reading and apparently I may not be required to use the provider my employer gives me.  It seems that if I go that route I won't get the exemption from social security taxes (7%).  Assuming I contribute the max (3350), the 7% savings alone is over $200. 

I guess it still works out in my favor, I just don't like all of these fees, and who knows what other fees are lurking in the background.


I think you may be mistaken about how HSAs work. As long as you eventually have medical expenses, the tax on the money you put in isn't deferred, it's eliminated. This makes the HSA hugely advantageous over a taxable account even with expense ratios that are higher than Vanguard.

As to your question about rollovers, I believe you're allowed to roll over the balance from your employer-sponsored HSA to a different HSA at any time. With a lower balance it probably isn't worthwhile since each HSA provider seems to tack on some sort of extra fee to maintain the account, either a flat fee or by requiring you keep part of the balance in cash that doesn't earn much (if any) interest or by offering high expense ratio funds. After maxing it out for a year or two you may want to consider looking around for an alternate place to park the bulk of your HSA savings.

Yeah, I know there's the advantage for medical expenses, I just was looking at it more for the investment potential.  I generally have around $200-300 of copays and whatnot per year, so that's an instant $50-$75 tax savings.  It's good to know rollovers are allowed while still employed, that may be a viable option for the future.

You still contribute the max to your company's HSA, so you can avoid those additional taxes up front, then once a year or so you roll them out to Saturna. This gives the best of both worlds.

ooeei

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Re: HSA Investment
« Reply #6 on: November 04, 2015, 12:41:11 PM »

You still contribute the max to your company's HSA, so you can avoid those additional taxes up front, then once a year or so you roll them out to Saturna. This gives the best of both worlds.

I finally got to the bottom of it, it's a $54/year fee for the account, with no extra fees for investing.  They have a Vanguard S&P 500 fund with a .17% ER, so that's what I'll stick with for now.  I don't think switching will be worth it for awhile.

In the earlier case where I thought the ERs were going to be out of control, your strategy would be perfect.  As it stands I'm paying the $54/year even if I rollover, so I might as well stick it in their funds with the .17% ER and avoid Saturna's transaction fee.

http://www.healthaccounts.bankofamerica.com/learn-individuals.shtml

Thanks for the help everyone!

Interest Compound

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Re: HSA Investment
« Reply #7 on: November 04, 2015, 12:47:48 PM »

You still contribute the max to your company's HSA, so you can avoid those additional taxes up front, then once a year or so you roll them out to Saturna. This gives the best of both worlds.

I finally got to the bottom of it, it's a $54/year fee for the account, with no extra fees for investing.  They have a Vanguard S&P 500 fund with a .17% ER, so that's what I'll stick with for now.  I don't think switching will be worth it for awhile.

In the earlier case where I thought the ERs were going to be out of control, your strategy would be perfect.  As it stands I'm paying the $54/year even if I rollover, so I might as well stick it in their funds with the .17% ER and avoid Saturna's transaction fee.

http://www.healthaccounts.bankofamerica.com/learn-individuals.shtml

Thanks for the help everyone!

Sounds like a plan. Good luck!