how do you invest your HSA

Have a question about your personal investments? No matter how simple or complex, you can ask it here.
Post Reply
bogleboyz
Posts: 64
Joined: Sat May 21, 2016 2:30 am

how do you invest your HSA

Post by bogleboyz » Sun May 14, 2017 1:50 pm

Hi everyone
I just started HSA and was wondering how should i invest the HSA
I have about $1000 in the HSA currently to invest (health equity requires $2000 balance in cash).
I was thinking about using the Vanguard Institutional Index Fund Institutional Plus Shares (VIIIX) with expense ratio of 0.02. however health equity adds additional expense of 0.4 to all the funds. There is no total stock market index fund which i prefer as compared to s & p.

I have other vanguard low cost index funds available in HSA including small value, international index fund, REIT index fund etc

i would appreciate any input

J295
Posts: 1176
Joined: Sun Jan 01, 2012 11:40 pm

Re: how do you invest your HSA

Post by J295 » Sun May 14, 2017 2:01 pm

Wellington

aj76er
Posts: 346
Joined: Tue Dec 01, 2015 11:34 pm
Location: Portland, OR

Re: how do you invest your HSA

Post by aj76er » Sun May 14, 2017 2:33 pm

I use the same institutional s&p fun as you mentioned. It is part of my overall asset allocation to US Stocks (which means I hold less equities in other places).

I do not track the mandatory cash balance as part of my AA
"Buy-and-hold, long-term, all-market-index strategies, implemented at rock-bottom cost, are the surest of all routes to the accumulation of wealth" - John C. Bogle

NiceUnparticularMan
Posts: 1740
Joined: Sat Mar 11, 2017 7:51 am

Re: how do you invest your HSA

Post by NiceUnparticularMan » Sun May 14, 2017 5:21 pm

We treat it as part of our overall long-term savings portfolio, and put into it whatever helps us achieve our overall target mix (currently that means we have SV in our HSA--we're using HSA Bank and the TD Ameritrade link, and we bought VBR, the Vanguard SV ETF). I do actually account for the small bits of cash left along the trail from our employer HSA, although really it doesn't matter.

User avatar
grabiner
Advisory Board
Posts: 20871
Joined: Tue Feb 20, 2007 11:58 pm
Location: Columbia, MD

Re: how do you invest your HSA

Post by grabiner » Sun May 14, 2017 5:25 pm

If you are investing your HSA for savings in retirement (either because you have one year's deductible in cash, or because you are paying current expenses without using the HSA in order to get more tax-deferred growth), then you should invest it as if it were part of your IRA, as it has the same purpose.

My own HSA is a TD Ameritrade account (through HSA Bank), so I can buy any ETF there for very low cost. It is a very small part of my portfolio, so it makes sense to hold only one fund there. I hold the ETF RZV (Guggenheim S&P 600 Pure Value) as part of my small-cap-value allocation.
David Grabiner

veggivet
Posts: 213
Joined: Sun Jan 25, 2015 1:07 pm
Location: New England

Re: how do you invest your HSA

Post by veggivet » Sun May 14, 2017 5:38 pm

Is there an argument to be made for favoring bonds over stocks in an HSA, given their triple tax-free treatment?

harvestbook
Posts: 316
Joined: Sat Mar 18, 2017 7:12 pm

Re: how do you invest your HSA

Post by harvestbook » Sun May 14, 2017 6:58 pm

veggivet wrote:Is there an argument to be made for favoring bonds over stocks in an HSA, given their triple tax-free treatment?
Yes. And the opposite argument--"I want to be really aggressive since the extra gains won't be taxed." It's just a matter of philosophy. I don't look at my HSAs as part of my overall retirement portfolio since it has a specific spending purpose, although of course we can tap that money for other needs in an emergency.

I have two HSAs--one at the bank paying 1.5 percent that we use as cash flow for any current health costs, with the idea being we'll take the immediate tax benefit today.

Our second is like a stealth IRA, invested for the long run (currently 30 US total/30 intl total/30 small value/10 bond.) This money will hopefully grow over a couple of decades for when our health costs are likely to increase.
I'm not smart enough to know, and I can't afford to guess.

harvestbook
Posts: 316
Joined: Sat Mar 18, 2017 7:12 pm

Re: how do you invest your HSA

Post by harvestbook » Sun May 14, 2017 7:01 pm

harvestbook wrote:
veggivet wrote:Is there an argument to be made for favoring bonds over stocks in an HSA, given their triple tax-free treatment?
I'll slowly boost the bond portion as that date draws nearer.
I'm not smart enough to know, and I can't afford to guess.

User avatar
grabiner
Advisory Board
Posts: 20871
Joined: Tue Feb 20, 2007 11:58 pm
Location: Columbia, MD

Re: how do you invest your HSA

Post by grabiner » Sun May 14, 2017 7:33 pm

veggivet wrote:Is there an argument to be made for favoring bonds over stocks in an HSA, given their triple tax-free treatment?
Once the money is in the HSA, it doesn't matter that it was tax-deductible when contributed. Money in the HSA and in a Roth IRA will have the same value when invested the same, so there is no advantage (other than possible HSA fund options) to hold a fund in your HSA rather than in your Roth IRA.

There is a theoretical advantage in holding bonds in the HSA for a different reason. If the stock market booms and you have stock in your HSA, the HSA might become larger than your medical costs in retirement, which would make part of it taxable. If the stock is in your taxable account or Roth IRA instead, you don't need to sell it.

And if you live in AL, CA, or NJ, then there is an advantage for holding Treasury bonds (including TIPS) in the HSA, as those states tax HSAs but do not tax Treasury bonds.
David Grabiner

User avatar
Peter Foley
Posts: 4073
Joined: Fri Nov 23, 2007 10:34 am
Location: Lake Wobegon

Re: how do you invest your HSA

Post by Peter Foley » Sun May 14, 2017 7:43 pm

Wouldn't your investment approach track with your spending plan (goals) for this account? Mine was invested in a stable value fund because I was withdrawing from it on a regular basis. If I were creating a nest egg to pay for future expenses I would have invested it differently.

jcerickson
Posts: 21
Joined: Sat Aug 13, 2016 11:08 am

Re: how do you invest your HSA

Post by jcerickson » Sun May 14, 2017 8:19 pm

As with a previous poster, I put mine in the Wellington fund. I'm with Optum and have to keep $2K in cash but I recently stopped using my HSA for expenses and am treating it more like an IRA. I invest all of my payroll deductions and pay for my minimal health costs out of pocket.

User avatar
grabiner
Advisory Board
Posts: 20871
Joined: Tue Feb 20, 2007 11:58 pm
Location: Columbia, MD

Re: how do you invest your HSA

Post by grabiner » Sun May 14, 2017 11:10 pm

Peter Foley wrote:Wouldn't your investment approach track with your spending plan (goals) for this account? Mine was invested in a stable value fund because I was withdrawing from it on a regular basis. If I were creating a nest egg to pay for future expenses I would have invested it differently.
If you are using your HSA for current expenses, the part that you expect to use should be in low-risk investments. This should probably be one year's deductible, plus any expenses which you expect not to be covered (vision and dental). But anything beyond that can be invested for retirement.
David Grabiner

Dottie57
Posts: 2258
Joined: Thu May 19, 2016 5:43 pm

Re: how do you invest your HSA

Post by Dottie57 » Sun May 14, 2017 11:21 pm

J295 wrote:Wellington
+1

User avatar
jhfenton
Posts: 2177
Joined: Sat Feb 07, 2015 11:17 am
Location: Ohio

Re: how do you invest your HSA

Post by jhfenton » Mon May 15, 2017 8:23 am

My employer-sponsored HSA has a handful of Vanguard funds and expensive active junk. They take two days to exchange between funds, so I keep just one equity fund (VTMGX/Vanguard Developed Markets Index Admiral) and one bond fund (VBTLX/Vanguard Total Bond Index Admiral). If I wanted to rebalance between those, I wouldn't care so much about the day delay.

For the most part, I treat the HSA as part of my overall retirement allocation. At the moment, my $40K is about 87% VTMGX, 8% VBTLX, 5% ($2,000) mandatory Cash, but new contributions are going in at 60% VTMGX, 40% VBTLX. When the account ratio gets closer to my overall equity/fixed income ratio (currently 85.7/14.3), I'll back it off to match.

I don't have any bonds in my Roth accounts, but I do in the HSA because the HSA serves a dual purpose. In case of a major medical emergency, the HSA is an additional source of emergency funds. I wouldn't want to have to sell equities when they were down, just to pay a medical bill. It's also why I ideally wouldn't want to pick a balanced fund.

User avatar
knpstr
Posts: 1804
Joined: Thu Nov 20, 2014 8:57 pm
Location: Michigan

Re: how do you invest your HSA

Post by knpstr » Mon May 15, 2017 8:26 am

100% TSM (after leaving enough cash in account for deductible)
Very little is needed to make a happy life; it is all within yourself, in your way of thinking. -Marcus Aurelius

User avatar
JDCarpenter
Posts: 1350
Joined: Tue Sep 09, 2014 2:42 pm

Re: how do you invest your HSA

Post by JDCarpenter » Mon May 15, 2017 9:49 am

NiceUnparticularMan wrote:We treat it as part of our overall long-term savings portfolio, and put into it whatever helps us achieve our overall target mix ....
This is what we do as well (fwiw, we hold VBR in the HSA as part of our tilt).
Edit Signature

NiceUnparticularMan
Posts: 1740
Joined: Sat Mar 11, 2017 7:51 am

Re: how do you invest your HSA

Post by NiceUnparticularMan » Mon May 15, 2017 10:10 am

JDCarpenter wrote:
NiceUnparticularMan wrote:We treat it as part of our overall long-term savings portfolio, and put into it whatever helps us achieve our overall target mix ....
This is what we do as well (fwiw, we hold VBR in the HSA as part of our tilt).
Me too!
:sharebeer

masteraleph
Posts: 490
Joined: Wed Nov 04, 2009 9:45 am

Re: how do you invest your HSA

Post by masteraleph » Mon May 15, 2017 10:35 am

NiceUnparticularMan wrote:We treat it as part of our overall long-term savings portfolio, and put into it whatever helps us achieve our overall target mix .

Same here. In our case, we're using Payflex (which is the employer-based HSA of choice). If our choices were truly terrible there, we'd probably move to something separate, but as it is, we use Vanguard Developed Markets and Vanguard Emerging Markets to simulate total international. Once a month, we sweep money contributed into those funds, and I use it to rebalance and make sure that we're more or less holding to a total international balance.

sschoo1
Posts: 6
Joined: Wed Mar 22, 2017 10:53 am

Re: how do you invest your HSA

Post by sschoo1 » Mon May 15, 2017 10:35 am

harvestbook wrote:
veggivet wrote:Is there an argument to be made for favoring bonds over stocks in an HSA, given their triple tax-free treatment?
Yes. And the opposite argument--"I want to be really aggressive since the extra gains won't be taxed." It's just a matter of philosophy. I don't look at my HSAs as part of my overall retirement portfolio since it has a specific spending purpose, although of course we can tap that money for other needs in an emergency.

I have two HSAs--one at the bank paying 1.5 percent that we use as cash flow for any current health costs, with the idea being we'll take the immediate tax benefit today.

Our second is like a stealth IRA, invested for the long run (currently 30 US total/30 intl total/30 small value/10 bond.) This money will hopefully grow over a couple of decades for when our health costs are likely to increase.
Dude what bank are you using that pays 1.5%? Is it a savings account?

User avatar
Pranav
Posts: 186
Joined: Thu Aug 25, 2016 11:25 am
Location: Austin, Texas, United States

Re: how do you invest your HSA

Post by Pranav » Mon May 15, 2017 12:20 pm

We pay for medical expenses from HSA, so we invest the HSA in Vanguard Total Bond Market Index Fund.

Edit: We include the HSA while calculating overall asset allocation.
Last edited by Pranav on Mon May 15, 2017 3:36 pm, edited 1 time in total.
Pranav

Soon2BXProgrammer
Posts: 266
Joined: Mon Nov 24, 2014 11:30 pm

Re: how do you invest your HSA

Post by Soon2BXProgrammer » Mon May 15, 2017 12:50 pm

I treat it as part of my total retirement portfolio. it is in total stock market index.

i keep receipts for eventual dispersal. instead of distributing the money and reinvesting in taxable.

i have an account balance in 5 digits as well as receipts in 5 digits. but the balance is currently many times the receipts.

Pax
Posts: 63
Joined: Sun Apr 23, 2017 10:56 am

Withdraw Anytime in the future?

Post by Pax » Mon May 15, 2017 12:59 pm

Question:
I might have read this somewhere but I would like a confirmation / opinions / take.

Can one actually pay medical expenses out of pocket and retain the receipt/invoice. Then anytime in the future -- even 30-40 years down the road -- withdraw an amount equal to those medical expenses?

If so then, in the meantime, the invested funds and all additional gains/dividends come out tax free (if used for medical expenses) or tax deferred (if withdrawn in retirement for other purposes) ?

Thanks
Pax

User avatar
JDCarpenter
Posts: 1350
Joined: Tue Sep 09, 2014 2:42 pm

Re: Withdraw Anytime in the future?

Post by JDCarpenter » Mon May 15, 2017 1:08 pm

Pax wrote:Question:
I might have read this somewhere but I would like a confirmation / opinions / take.

Can one actually pay medical expenses out of pocket and retain the receipt/invoice. Then anytime in the future -- even 30-40 years down the road -- withdraw an amount equal to those medical expenses?

If so then, in the meantime, the invested funds and all additional gains/dividends come out tax free (if used for medical expenses) or tax deferred (if withdrawn in retirement for other purposes) ?

Thanks
Pax
Under current law, that is true. We have been saving records of major expenditures/surgeries for several years for that reason. Here is a recent[ish] discussion: viewtopic.php?t=204979
Edit Signature

tech_arch
Posts: 210
Joined: Wed May 27, 2015 11:47 am

Re: Withdraw Anytime in the future?

Post by tech_arch » Mon May 15, 2017 1:13 pm

Pax wrote:Question:
I might have read this somewhere but I would like a confirmation / opinions / take.

Can one actually pay medical expenses out of pocket and retain the receipt/invoice. Then anytime in the future -- even 30-40 years down the road -- withdraw an amount equal to those medical expenses?

If so then, in the meantime, the invested funds and all additional gains/dividends come out tax free (if used for medical expenses) or tax deferred (if withdrawn in retirement for other purposes) ?

Thanks
Pax
Yes. See https://www.bogleheads.org/wiki/Health_ ... _of_pocket

Pax
Posts: 63
Joined: Sun Apr 23, 2017 10:56 am

Re: how do you invest your HSA

Post by Pax » Mon May 15, 2017 2:29 pm

Gosh... there's so much to learn and apply.

I am adding this to my Investment Strategy Policy:
For HSA
AA
- 100% Vanguard Total Bond Market Index Fund Investor Share (VBMFX) ER=0.16% plus $72/yr
or
- Keep one year deductible in cash (in 2017 $3,500 total)
- Balance portion to grow in 10 years, example, in 30 US total/30 intl total/30 small value/10 bond
- Keep all receipts!
Note:
Paying current expenses out of pocket
If you are maxing out your retirement accounts, you should treat the HSA as an opportunity for further savings, like an IRA, and not withdraw from it until you retire. If you have $1,000 in medical bills, paying them from your taxable account leaves the $1,000 in the HSA to grow tax-free (and keeps the right to withdraw $1,000 tax-free in a future year), while paying them from the HSA leaves $1,000 in your taxable account, which will grow subject to taxes since you do not have any room for tax-sheltered contributions.

Once you are retired, you can withdraw from the HSA an amount equal to your past medical expenses plus any current expenses tax-free, and withdraw from your other accounts for non-medical expenses. HSAs can be used to pay medicare premiums and other medical expenses in retirement
.

veggivet
Posts: 213
Joined: Sun Jan 25, 2015 1:07 pm
Location: New England

Re: how do you invest your HSA

Post by veggivet » Mon May 15, 2017 3:24 pm

Sounds like a good plan, Pax. Don't forget that once you turn 65, HSA funds can be withdrawn for any purpose without penalty, although those proceeds will be treated as income as far as taxes are concerned. Another benefit of HSAs is that they are not included in your RMD calculations.

User avatar
Lieutenant.Columbo
Posts: 1012
Joined: Sat Sep 05, 2015 9:20 pm
Location: 30th Parallel North

Re: how do you invest your HSA

Post by Lieutenant.Columbo » Mon May 15, 2017 3:57 pm

bogleboyz wrote:...was wondering how should i invest the HSA
100% buy & hold VSIAX, Saturna
Lt. Columbo: Well, what do you know. Here I am talking with some of the smartest people in the world, and I didn't even notice!

masteraleph
Posts: 490
Joined: Wed Nov 04, 2009 9:45 am

Re: how do you invest your HSA

Post by masteraleph » Mon May 15, 2017 5:09 pm

veggivet wrote:Sounds like a good plan, Pax. Don't forget that once you turn 65, HSA funds can be withdrawn for any purpose without penalty, although those proceeds will be treated as income as far as taxes are concerned. Another benefit of HSAs is that they are not included in your RMD calculations.
Also note that Medicare Parts A, B, C and D premiums (but not Medigap) count as health expenses for HSAs.

One thing not often mentioned on here, though: HSAs should probably be emptied before Roth IRAs. Spouses can easily inherit HSAs, but the rules for anyone else are much harder.

j0nnyg1984
Posts: 309
Joined: Sun Apr 24, 2016 9:55 am

Re: how do you invest your HSA

Post by j0nnyg1984 » Mon May 15, 2017 7:10 pm

I currently don't, and it's infuriating. The bulk of my HSA assets are at LMCU. I tried to move them over to my new provider, HSA Bank, early this year, mailed in the forms, etc. LMCU denied the transfer, claiming they needed additional forms. 5 months later and I still haven't messed around with getting everything resubmitted :annoyed

Easy Rhino
Posts: 3202
Joined: Sun Aug 05, 2007 11:13 am
Location: San Diego

Re: how do you invest your HSA

Post by Easy Rhino » Mon May 15, 2017 7:29 pm

TIPS ETF at Saturna.

User avatar
JonnyDVM
Posts: 1580
Joined: Wed Feb 12, 2014 6:51 pm
Location: Atlanta, GA

Re: how do you invest your HSA

Post by JonnyDVM » Mon May 15, 2017 8:15 pm

S&P 500 index fund (Best ER). I pay my expenses out the HSA and don't play the "pay with a credit card now, save crumpled up receipt in a shoe box for 30 years" game
Sometimes the questions are complicated and the answers are simple. -Dr. Seuss

User avatar
Lieutenant.Columbo
Posts: 1012
Joined: Sat Sep 05, 2015 9:20 pm
Location: 30th Parallel North

Re: how do you invest your HSA

Post by Lieutenant.Columbo » Mon May 15, 2017 8:27 pm

JonnyDVM wrote:...save crumpled up receipt in a shoe box for 30 years...
scan & discard receipt
Lt. Columbo: Well, what do you know. Here I am talking with some of the smartest people in the world, and I didn't even notice!

Tom1320
Posts: 26
Joined: Wed Feb 01, 2017 9:23 am
Location: lost in the Carolina foothills

Re: how do you invest your HSA

Post by Tom1320 » Mon May 15, 2017 8:55 pm

We keep two years deductable amount in cash and the balance in Vanguard LifeStrategy Conservative Growth which mirrors our overall target AA of 40/60. While working it was used as additional tax advantaged space but since retirement we use it for medical expenses.
"And this, too, shall pass away." How much it expresses! How chastening in the hour of pride! How consoling in the depths of affliction! - Our 16th President

NiceUnparticularMan
Posts: 1740
Joined: Sat Mar 11, 2017 7:51 am

Re: how do you invest your HSA

Post by NiceUnparticularMan » Tue May 16, 2017 6:11 am

veggivet wrote:Don't forget that once you turn 65, HSA funds can be withdrawn for any purpose without penalty, although those proceeds will be treated as income as far as taxes are concerned. Another benefit of HSAs is that they are not included in your RMD calculations.
That's exactly why I just treat them as part of our long-term savings. Obviously we'll keep receipts and preferentially use them as appropriate for medical expenses, but even after that they are a good long-term savings option for general purposes.

User avatar
Lieutenant.Columbo
Posts: 1012
Joined: Sat Sep 05, 2015 9:20 pm
Location: 30th Parallel North

Re: how do you invest your HSA

Post by Lieutenant.Columbo » Tue May 16, 2017 6:24 am

veggivet wrote:...once you turn 65, HSA funds can be withdrawn for any purpose without penalty, although those proceeds will be treated as income as far as taxes are concerned. Another benefit of HSAs is that they are not included in your RMD calculations.
NiceUnparticularMan wrote:...I just treat them as part of our long-term savings. Obviously we'll keep receipts and preferentially use them as appropriate for medical expenses, but even after that they are a good long-term savings option for general purposes.
so, tax-wise, when cashed for medical expenses, the HSA is like a Roth, and if cashed for any other purpose after age 65 it is income Tax Deferred with no RMD, correct?
Lt. Columbo: Well, what do you know. Here I am talking with some of the smartest people in the world, and I didn't even notice!

NiceUnparticularMan
Posts: 1740
Joined: Sat Mar 11, 2017 7:51 am

Re: how do you invest your HSA

Post by NiceUnparticularMan » Tue May 16, 2017 6:45 am

Lieutenant.Columbo wrote:so, tax-wise, when cashed for medical expenses, the HSA is like a Roth, and if cashed for any other purpose after age 65 it is income Tax Deferred with no RMD, correct?
Really better than a Roth for medical, since it went in pre-tax too. But yes, that is how the withdrawal side works.

harvestbook
Posts: 316
Joined: Sat Mar 18, 2017 7:12 pm

Re: how do you invest your HSA

Post by harvestbook » Tue May 16, 2017 7:12 am

sschoo1 wrote:
harvestbook wrote:
veggivet wrote:
Dude what bank are you using that pays 1.5%? Is it a savings account?
Local government credit union. It is an HSA account only, although we do have checking and savings accounts there, too. We like it because we get the debit card and it makes cash-flowing simple but we only keep a few thousand in it, but will add to it if it gets low. We can also easily reimburse ourselves through online banking if we have to pay checks for services. Very convenient and liquid without having to mail a bunch of forms around.

Of course we could let it sit there or transfer it over to our investment HSA, but the compounding is so low, but my philosophy is that using it today means I exploit the tax benefits now instead of some theoretical future. The convenience alone is worth whatever small future gains might accrue.

(For comparison, they also have an IRA account that pays 1.5 percent fixed, too, so...not optimal, but an option for someone who is worried about a crash or something.)
I'm not smart enough to know, and I can't afford to guess.

keystone
Posts: 449
Joined: Tue Aug 28, 2012 12:34 pm

Re: how do you invest your HSA

Post by keystone » Tue May 16, 2017 8:01 am

I invest my HSA to try and match the timeline of when I would need the funds. I invest in a roughly 60/40 split between the Vanguard Total Stock Market ETF (VTI) and Total Bond Market ETF (BND) through my account at HSA Bank linked with TD Ameritrade. I'm currently paying all out of pocket medical expenses from our taxable account and I save every receipt over $100. I'm not exactly sure when I will ever withdraw funds from the HSA, but I think I might when it comes time for my son's college education in about 15-17 years. Either way, I want to tap into the HSA before I start withdrawing from other retirement accounts for the reason mentioned earlier.

dignan
Posts: 56
Joined: Mon Nov 23, 2015 1:01 pm
Location: chicago

Re: how do you invest your HSA

Post by dignan » Tue May 16, 2017 9:26 am

I invest in Vanguard LifeStrategy Growth at HSA Authority. I download a PDF of our health insurance year end EOB for record keeping every year. We plan on using the HSA funds once we're about 55 years old or older.

sco
Posts: 626
Joined: Thu Sep 24, 2015 2:28 pm

Re: how do you invest your HSA

Post by sco » Wed May 17, 2017 8:13 am

I keep minimal cash, $6k in a balanced fund, and then only buy the S&P 500 moving forward. This allows me to always sell $6k without running afoul of the buy/sell restriction within 30 days.

User avatar
Lieutenant.Columbo
Posts: 1012
Joined: Sat Sep 05, 2015 9:20 pm
Location: 30th Parallel North

Re: how do you invest your HSA

Post by Lieutenant.Columbo » Tue Jul 04, 2017 12:16 pm

NiceUnparticularMan wrote:
Lieutenant.Columbo wrote:so, tax-wise, when cashed for medical expenses, the HSA is like a Roth, and if cashed for any other purpose after age 65 it is income Tax Deferred with no RMD, correct?
Really better than a Roth for medical, since it went in pre-tax too. But yes, that is how the withdrawal side works.
clarification needed, please:
after age 65, if HSA funds are used for non medical reasons, the entire withdrawn amount will be income-taxed (and not only the growth), correct? thanks
Lt. Columbo: Well, what do you know. Here I am talking with some of the smartest people in the world, and I didn't even notice!

User avatar
whodidntante
Posts: 2202
Joined: Thu Jan 21, 2016 11:11 pm

Re: how do you invest your HSA

Post by whodidntante » Tue Jul 04, 2017 12:25 pm

I use my HSA as a tax advantaged investment account. I track medical expenses so I can withdraw them later but so far I haven't taken a dime from the account.

Currently I hold Vanguard Developed Markets Index Admiral in my HSA, except for the required $1,000 cash balance. I prefer to own stock in the HSA because it's likely I will be able to withdraw the money tax free someday. I buy whatever stock I'm short of in my desired asset allocation. I'm holding 50% ex-US.

100% of my fixed income is in my pre-tax 401k except for a money market fund that holds expenses for the current month.

GuineaPig
Posts: 39
Joined: Tue Jun 20, 2017 10:50 am

Re: how do you invest your HSA

Post by GuineaPig » Tue Jul 04, 2017 12:29 pm

My family opened an HSA this year and made the max deposit for the year. Main reason we opened was to reduce MAGI for ACA health insurance.

We live in California, meaning that the HSA is treated as a regular account for state taxation. That, combined with the fact that I find the HSA world to be overwhelmingly complex, led me to just open the HSA at Alliant Credit Union, where we already had a bank account, and stick the money into their HSA checking account, which pays 0.65%. We'll pay state taxes on the interest, but not have to figure out anything related to capital gains, as I think we would have to do if we had mutual funds in there.

Alliant charges no monthly fee for the cash account. I suppose if we made our lives more complex (switch to Saturna, pay $25/year when we make an investment, and get a TIPS fund), we could avoid the state taxes and earn a bit more interest, but it just doesn't feel worth it to me at this point.

As it stands, I consider the HSA as part of the emergency fund and simply reduced my cash holdings in other accounts to compensate for it.

User avatar
whodidntante
Posts: 2202
Joined: Thu Jan 21, 2016 11:11 pm

Re: how do you invest your HSA

Post by whodidntante » Tue Jul 04, 2017 12:30 pm

Lieutenant.Columbo wrote:
NiceUnparticularMan wrote:
Lieutenant.Columbo wrote:so, tax-wise, when cashed for medical expenses, the HSA is like a Roth, and if cashed for any other purpose after age 65 it is income Tax Deferred with no RMD, correct?
Really better than a Roth for medical, since it went in pre-tax too. But yes, that is how the withdrawal side works.
clarification needed, please:
after age 65, if HSA funds are used for non medical reasons, the entire withdrawn amount will be income-taxed (and not only the growth), correct? thanks
Yes, but you will probably have medical expenses galore to withdraw the money completely tax free. You are also allowed to withdraw past qualified medical expenditures, so long as you were eligible for HSA contributions when you incurred them.

aristotelian
Posts: 3033
Joined: Wed Jan 11, 2017 8:05 pm

Re: how do you invest your HSA

Post by aristotelian » Tue Jul 04, 2017 12:36 pm

I am thinking first $5K in Vanguard Retirement Income as a good bet to make sure I have my annual fees covered. Everything above that in S&P500.

deltaneutral83
Posts: 419
Joined: Tue Mar 07, 2017 4:25 pm

Re: how do you invest your HSA

Post by deltaneutral83 » Tue Jul 04, 2017 2:47 pm

cerdito wrote:
We live in California, meaning that the HSA is treated as a regular account for state taxation. That, combined with the fact that I find the HSA world to be overwhelmingly complex, led me to just open the HSA at Alliant Credit Union, where we already had a bank account, and stick the money into their HSA checking account, which pays 0.65%. We'll pay state taxes on the interest, but not have to figure out anything related to capital gains, as I think we would have to do if we had mutual funds in there.
I have never heard this about any taxation of HSA's

Helo80
Posts: 436
Joined: Sat Apr 29, 2017 8:47 pm

Re: how do you invest your HSA

Post by Helo80 » Tue Jul 04, 2017 3:07 pm

100% VFIAX (pretty much only index fund available to me and I think ER is still at 0.04%)
I don't consider it part of my overall AA. It's just money that exists for me if bad times come.

GuineaPig
Posts: 39
Joined: Tue Jun 20, 2017 10:50 am

Re: how do you invest your HSA

Post by GuineaPig » Tue Jul 04, 2017 3:45 pm

deltaneutral83 wrote:
cerdito wrote:
We live in California, meaning that the HSA is treated as a regular account for state taxation. That, combined with the fact that I find the HSA world to be overwhelmingly complex, led me to just open the HSA at Alliant Credit Union, where we already had a bank account, and stick the money into their HSA checking account, which pays 0.65%. We'll pay state taxes on the interest, but not have to figure out anything related to capital gains, as I think we would have to do if we had mutual funds in there.
I have never heard this about any taxation of HSA's
I only learned about it here. See https://www.bogleheads.org/wiki/Health_ ... on_of_HSAs

If you search the forums, you'll see that some people in CA recommend getting a TIPS fund in the HSA, so that there would be no state taxes, thus avoiding having problems down the road. But I'm no expert -- I recommend you search for those forum threads and read up on the situation (a simple "california hsa taxes" search ought to suffice).

I only raised here, because the question was "how do you invest your HSA?" and this taxation situation has affected how I choose to invest it (basically causing me to use my HSA as part of my fixed income allocation rather than as part of my equity allocation).

Post Reply