putting money in HSA vs investing

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PNW86
Posts: 58
Joined: Sat May 18, 2013 4:32 pm

putting money in HSA vs investing

Post by PNW86 »

Hi,

I started a new job, and have opted to have a high deductible health plan with an HSA account. I am 29, have no health problems, and do not plan to have children in the next 3-4 years. My current expenses include a mortgage, and I have an 11 year old car with 120K miles which may need some work, but not anything right away.

January 1, I plan to max out a Roth IRA for the 2016 year (I am already maxed out for this year). I am trying to figure out if I should max out my HSA ($3500) both for this calendar year (2015) and next calendar year, or be more conservative with this account, putting ~$200 per month in it and instead using my excess money to invest in a taxable vanguard account.

I currently have ~$15K in a cash emergency fund, about $5k in a checking account. I don't think that putting $7k in an HSA and $5500 in a Roth IRA in the next few months would leave me enough of a cash emergency fund to be comfortable if something happened with my car or home that required money. I also know if my HSA had a few thousand in it and my Roth was maxed out, maybe I don't need as much liquid cash in an emergency fund....

If it helps, I have about $11k in Roth IRAs, $10k in a taxable vanguard account, and about $15k in a separate (SEPP) retirement account.

Your thoughts are appreciated- Thanks!
moral_hazard
Posts: 115
Joined: Sat Jul 26, 2014 2:27 am

Re: putting money in HSA vs investing

Post by moral_hazard »

PNW86 wrote:Hi,

I started a new job, and have opted to have a high deductible health plan with an HSA account. I am 29, have no health problems, and do not plan to have children in the next 3-4 years. My current expenses include a mortgage, and I have an 11 year old car with 120K miles which may need some work, but not anything right away.

January 1, I plan to max out a Roth IRA for the 2016 year (I am already maxed out for this year). I am trying to figure out if I should max out my HSA ($3500) both for this calendar year (2015) and next calendar year, or be more conservative with this account, putting ~$200 per month in it and instead using my excess money to invest in a taxable vanguard account.

I currently have ~$15K in a cash emergency fund, about $5k in a checking account. I don't think that putting $7k in an HSA and $5500 in a Roth IRA in the next few months would leave me enough of a cash emergency fund to be comfortable if something happened with my car or home that required money. I also know if my HSA had a few thousand in it and my Roth was maxed out, maybe I don't need as much liquid cash in an emergency fund....

If it helps, I have about $11k in Roth IRAs, $10k in a taxable vanguard account, and about $15k in a separate (SEPP) retirement account.

Your thoughts are appreciated- Thanks!
This is a tough balance to walk because of the point you mention of your emergency fund not being sufficient if something comes up. It's good that you're thinking critically here.

Would it make sense to max out the HSA for just this year ($3500 for 2015 contribution) and then keep the remaining money in taxable? You have a whole year to make your 2016 HSA contrib, so I wouldn't rush it if you feel that it's putting you in an unsafe position emergency-fund wise. Front-loading accounts as you propose is a good idea but the gain isn't huge so I would only recommend it if you can do it comfortably. Otherwise you could learn towards waiting on the 2016 contribution, or doing a monthly contribution as you describe. Monthly tends to lend to helping you budget better and keeping your net income constant throughout the year.

Personally, I like the idea of monthly savings to keep budgeting stable as well as the increased gains of front-loading. So I set up three accounts in ally:
Checking
HSA front-load
Roth IRA front-load

My paychecks go into checking, and then each paycheck you can auto-withdraw $140 into HSA front-load and $230 into Roth IRA front-load (or whatever amount you want). If you start this process on Jan 1, you'll end up with enough money saved at EOY to front load both accounts when the new tax year rolls around. Though it requires discipline to not dip into them mid-year. :-)
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Miriam2
Posts: 4387
Joined: Fri Nov 14, 2014 10:51 am

Re: putting money in HSA vs investing

Post by Miriam2 »

You might want to take a look at front-loading HSA accounts in this thread
"HSA contributions - front load 'em?"
www.bogleheads.org/forum/viewtopic.php?f=1&t=92074
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grabiner
Advisory Board
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Joined: Tue Feb 20, 2007 10:58 pm
Location: Columbia, MD

Re: putting money in HSA vs investing

Post by grabiner »

If your emergency fund is short, you can keep part of it in the Roth IRA; contributions can be withdrawn tax-free at any time. (If you do this, keep the emergency-fund part of your Roth IRA in a low-risk investment such as a money-market fund or short-term bond fund; you don't want to have to withdraw your emergency funds from the stock market when the stock market has just wiped out half of them.)

Do max out the HSA. It's probably worth keeping one year's deductible in a bank account, but anything beyond that is probably being saved for medical costs in retirement and can be invested as if it was part of your IRA.
Wiki David Grabiner
Katietsu
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Joined: Sun Sep 22, 2013 1:48 am

Re: putting money in HSA vs investing

Post by Katietsu »

If you have not been with this employer and the HSA eligible plan for all of 2015, then I would review the rules for your contribution limits. Since you are on the fence, I think I would consider contributing based on actual months of eligibility. In that way, you are not risking a penalty if you leave your job or change to an ineligible plan during the testing period.
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