BofA HSA: Available Investments

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Topic Author
umfundi
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BofA HSA: Available Investments

Post by umfundi »

All,

We have a very moderate HSA at Bank of America. It is less than $20k, and I only have three more years to contribute before age 65. Nonetheless, here are the investment options, besides cash:

AMERICAN FUNDS CAPWLD G&I -F
BLACKROCK EQUITY DIVIDEND A
BLACKROCK FLEXIBLE EQUITY FUND
COLUMBIA CAPITAL MOD AGRSV Z
COLUMBIA LIFEGOAL GROWTH Z
COLUMBIA LIFEGOAL INCOME Z
COLUMBIA MID CAP GROWTH FUND
COLUMBIA MID CAP VALUE Z
COLUMBIA SMALL CAP VALUE II Z
COLUMBIA US TREASURY INDEX Z
FEDERATED KAUFMANN SMALL CAP
INVESCO MID CAP GR
JHANCOCK LARGE CAP EQUITY I
MAINSTAY HIGH YIELD CORP BOND
MAINSTAY LARGE CAP GROWTH A
MAINSTAY S&P 500 INDEX A
OPPENHEIMER MN ST SM & MID CAP
PIMCO LOW DURATION
PIMCO TOTAL RETURN FUND
THORNBURG INTERNATIONAL VAL A
THORNBURG VALUE A
VANGUARD MID CAP INDEX FUND
VANGUARD SMALL CAP INDEX FUND

There are no minimum investments.

I don't see an obvious single or even 3-fund choice. This is not a huge deal in terms of our investing future.

I'd like to do something low cost and rational. Our overall Asset Allocation (50/50) is really immaterial here. So, given the following rules that I just made up:

1. Maximum 5 investment choices.
2. No less than 10% allocation to any one investment.
3. Your memo to me: This is low in (bonds, armadillo skins, ...) whatever.

What are the better investment choices in the above list? By the way, BofA has a really neat auto-re-balance feature for these accounts.

Thank you,

Keith

PS: I did ask this question a couple of years ago, but then my wife had a minor accident that nonetheless maxed our medical expenses. So, this account has been in cash for over a year.
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Topic Author
umfundi
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Re: BofA HSA: Available Investments

Post by umfundi »

(Bump) Bank of America HSA Investment Options

I checked out all the funds. Most have expense ratios below 1%, but plus 12b-1 fees of 0.25%. A number of them have had reasonable performance. On the BofA site you can eventually click through to the Morningstar details of each option.
https://benefitsolutions.bankofamerica. ... isplay.jsp

But, I do not need another portfolio to manage. I elected 50/50 the two Vanguard funds, which are Investor class. I'll get the diversification in other accounts. Done.

Keith
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centrifuge41
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Re: BofA HSA: Available Investments

Post by centrifuge41 »

How much is Mainstay S&P 500 index? 0.30%?
What about Columbia treasury index, Vanguard small cap index, and Vanguard mid cap index?

Looks like you could take care of domestic equities and bonds, but hold international indices elsewhere.
Topic Author
umfundi
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Re: BofA HSA: Available Investments

Post by umfundi »

centrifuge41 wrote:How much is Mainstay S&P 500 index? 0.30%?
What about Columbia treasury index, Vanguard small cap index, and Vanguard mid cap index?

Looks like you could take care of domestic equities and bonds, but hold international indices elsewhere.
From the Morningstar pages:

Code: Select all

Fund                    Mgt   12b1  Prospectus Gross
                        Fee%  Exp%   Exp Ratio%

Columbia US Treasury    0.40   NA    0.41
Index 

MainStay S&P 500        0.24  0.25   0.69
Index A Load Waived  

Vanguard Mid Cap        0.20   NA    0.24
Index Inv            

Vanguard Small Cap      0.20   NA    0.30
Index Inv          
My portfolio here is pretty small, so it does not affect my overall diversification.

Keith
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learning_head
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Re: BofA HSA: Available Investments

Post by learning_head »

Go with midcap index ASSUMING you don't need the cash from this account for the next 5-10 years (and will pay medical bills from other accounts). Lowest fee and you said it does not affect your AA much. So, I would not spend much time on this. If you DO think you may need money from this account in the next 5-10 years, I would keep it out of equities and in cash (Columbia Treasury fund if costs are low) or maybe a bond fund (pimco total return, if costs are < 1%). I would not split into multiple funds, but if you feel more comfortable, choose 2 for a 50/50 split.

If you do want to spend more time on this, what are BofA HSA account costs? Is there are cheaper HSAs out there with better options?
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Stickman
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Re: BofA HSA: Available Investments

Post by Stickman »

I chose Alliant Credit Union for my HSA account and it currently earns 1.25% there (last I checked).
I keep my mutual funds elsewhere for lower cost, and since they may be longer term investments.

TIP: you are entitled to a once per lifetime contribution from a traditional IRA account (same dollar limit).
My simple way of viewing this is like a free Roth conversion (since the HSA is taxfree).

Good luck and stay healthy.
Rick
learning_head
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Re: BofA HSA: Available Investments

Post by learning_head »

@Stickman: Thanks for the tip! I did not know about it but looking more into it, if I understand it correctly, if you are employed and using HSA to lower your taxable income, it may still be better to continue doing so as the conversion would consume part of the available HSA contributions for the year. In other words, IRA to HSA conversion transfers your tax deferred dollars to tax free ones in HSA, whereas taxable account to HSA contribution will transfer your taxable dollars to tax free ones in HSA. So, I am not sure when it would be beneficial to make IRA-to-HSA conversion... (maybe only if your tax bracket is 0% or 10%?)
Topic Author
umfundi
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Re: BofA HSA: Available Investments

Post by umfundi »

learning_head wrote:@Stickman: Thanks for the tip! I did not know about it but looking more into it, if I understand it correctly, if you are employed and using HSA to lower your taxable income, it may still be better to continue doing so as the conversion would consume part of the available HSA contributions for the year. In other words, IRA to HSA conversion transfers your tax deferred dollars to tax free ones in HSA, whereas taxable account to HSA contribution will transfer your taxable dollars to tax free ones in HSA. So, I am not sure when it would be beneficial to make IRA-to-HSA conversion... (maybe only if your tax bracket is 0% or 10%?)
This is perhaps not correct, or at least it needs clarification. On the face of it, I do not see the point of putting funds that are already tax advantaged into an HSA

Contributions to a qualified HSA are tax free.

Withdrawals are tax free if used for qualifying medical expenses. Otherwise withdrawals are taxed and it looks like a deductible IRA.

Many people have a strategy to fund their HSA but to pay medical expenses with current funds. Keep the receipts, and you can get the HSA money double tax free in the future.

Keith

Edit: I found this:

http://www.bogleheads.org/wiki/IRA_Roll ... _Transfers
Last edited by umfundi on Sat Jan 12, 2013 1:34 pm, edited 1 time in total.
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Topic Author
umfundi
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Re: BofA HSA: Available Investments

Post by umfundi »

learning_head wrote: If you do want to spend more time on this, what are BofA HSA account costs? Is there are cheaper HSAs out there with better options?
The HSA costs are paid by my employer. For me, there are none. I think the options are quite good, so I won't be shopping around.

Keith
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Stickman
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Re: BofA HSA: Available Investments

Post by Stickman »

learning_head wrote: I am not sure when it would be beneficial to make IRA-to-HSA conversion... (maybe only if your tax bracket is 0% or 10%?)
Learning_head, if you have not maxed-out on your tax-deferred alternatives then this benefits you as follows:

Alternative 1:
$4,000 IRA contribution
$4,000 HSA contribution
$8,000 less taxable income (currently worth $2,000 @ 25%)

Alternative 2:
$8,000 IRA contribution (still currently worth $2,000 @ 25%)
$4,000 IRA-to-HSA conversion (saves you future taxes, perhaps worth $1,000 @ 25%)

Moreover, note that if husband and wife are over 55 then the total IRA-to-HSA can be 2*(3250+1000)=$8,500. Not too shabby, huh?
umfundi wrote:I do not see the point of putting funds that are already tax advantaged into an HSA
Umfundi, the point is that tax-free dollars are worth more than tax-deferred dollars if it doesn’t cost you anything to convert them. I presume I’ll eventually use them for qualified medical expenses.
Topic Author
umfundi
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Re: BofA HSA: Available Investments

Post by umfundi »

Stickman wrote:
learning_head wrote:
umfundi wrote:I do not see the point of putting funds that are already tax advantaged into an HSA
Umfundi, the point is that tax-free dollars are worth more than tax-deferred dollars if it doesn’t cost you anything to convert them. I presume I’ll eventually use them for qualified medical expenses.
And taxable dollars are best of all to convert to tax-free, is my point.

Keith
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Stickman
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Re: BofA HSA: Available Investments

Post by Stickman »

Umfundi, I don't follow.

I'm assuming there are limited dollars that can be used for IRA and HSA contributions. In my two examples the out-of-pocket contributions both total $8,000. If this is going to be true then the second alternative gives you an additional benefit.

If you have enough money to contribute more and further reduce your taxable income, you can still do this anyway by directing it towards a tax-deferred retirement account (if you have not maxed-out) and do the one-time IRA-to-HSA.

Does that clarify?
Topic Author
umfundi
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Re: BofA HSA: Available Investments

Post by umfundi »

Stickman wrote:Umfundi, I don't follow.

I'm assuming there are limited dollars that can be used for IRA and HSA contributions. In my two examples the out-of-pocket contributions both total $8,000. If this is going to be true then the second alternative gives you an additional benefit.

If you have enough money to contribute more and further reduce your taxable income, you can still do this anyway by directing it towards a tax-deferred retirement account (if you have not maxed-out) and do the one-time IRA-to-HSA.

Does that clarify?
No.

Please read this:

http://www.bogleheads.org/wiki/IRA_Roll ... _Transfers
You can make a once in a lifetime rollover or transfer from an IRA to an HSA up to the annual HSA funding limit. This is usually not advised since you would lose the ability to contribute and take an HSA tax deduction for the amount you transfer, but it can be an emergency source of funds without paying taxes or penalties.
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Stickman
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Re: BofA HSA: Available Investments

Post by Stickman »

Thanks. It seems like it’s just a wash now that I think about it further. Expanding on my earlier example:

Alternative 1:
$4,000 IRA contribution
$4,000 HSA contribution
$8,000 less taxable income (currently worth $2,000 @ 25% with deferred taxes on the incremental $4,000 IRA contribution)

Alternative 2:
$8,000 IRA contribution (still currently worth $2,000 @ 25% with deferred taxes on the incremental $4,000 IRA ($8K contribution less $4K conversion) )
$4,000 IRA-to-HSA conversion

So, looks like a toss-up to me now. Thanks for causing me to think about this more carefully. Are we on the same page now?
Topic Author
umfundi
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Re: BofA HSA: Available Investments

Post by umfundi »

Stickman wrote:Are we on the same page now?
Stickman,

I really do not know enough to comment.

You can Google IRA Rollover HSA just as well as I can. Or, start a new thread on the topic.

Keith
Last edited by umfundi on Sun Jan 13, 2013 3:32 pm, edited 1 time in total.
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wander
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Re: BofA HSA: Available Investments

Post by wander »

Assuming you already have other account than HSA, then you only need one fund in HSA for your total portfolio. Although I have many choices, I only have one Real Estate fund in my HSA account because I treat it as one piece of the pie chart. If I were you, I would start with VANGUARD SMALL CAP INDEX FUND and adjust other accounts accordingly.
learning_head
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Re: BofA HSA: Available Investments

Post by learning_head »

Stickman wrote:Thanks. It seems like it’s just a wash now that I think about it further. Expanding on my earlier example:

Alternative 1:
$4,000 IRA contribution
$4,000 HSA contribution
$8,000 less taxable income (currently worth $2,000 @ 25% with deferred taxes on the incremental $4,000 IRA contribution)

Alternative 2:
$8,000 IRA contribution (still currently worth $2,000 @ 25% with deferred taxes on the incremental $4,000 IRA ($8K contribution less $4K conversion) )
$4,000 IRA-to-HSA conversion

So, looks like a toss-up to me now. Thanks for causing me to think about this more carefully. Are we on the same page now?
I am confused... above additions do not seem to change your original argument / advantage. It appears you have 4k in IRA with taxes deferred on 4k... So, it's still better to contribute to IRA and then convert (if, as you said, you can't max out both) ?
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Stickman
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Re: BofA HSA: Available Investments

Post by Stickman »

Learning_head, I originally thought there was an incremental savings in alternative 2 over alternative 1 for the same $8,000 out-of-pocket contribution. What I hadn’t initially recognized was the benefit in alternative 1 of converting $4,000 taxable dollars to tax-free dollars in the HSA. You could also quantify this as saving you future taxes by using the HSA, perhaps worth $1,000 @ 25% -- so same for both alternatives. The net current tax savings ($2k) and future tax saving ($1k) now look identical to me for both scenarios. Hope this helps. Bottom line is that I am absolutely delighted with my HSA and my low-cost high-deductible health insurance program. I’m investing in the HSA to the max and it’s earning 1.25% tax-free if I use it for qualified expenses, hopefully many years from now.

I’m afraid I’ve unintentionally diverted this thread from the OP’s original question. Sorry, didn’t intend to.
Topic Author
umfundi
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Re: BofA HSA: Available Investments

Post by umfundi »

Stickman wrote: I’m afraid I’ve unintentionally diverted this thread from the OP’s original question. Sorry, didn’t intend to.
The OP is done. No problem.

Keith
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