Investing my HSA

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erdo
Posts: 28
Joined: Sat Feb 14, 2015 8:31 pm

Investing my HSA

Post by erdo » Thu Oct 05, 2017 9:44 pm

Hello all,

I am new to investing in an HSA (my spouse's new employer offers an HDHP). The HSA is invested through Bank of America (this is where the account was automatically set up by the employer). I have done a search and learned a lot about investing an HSA, but still had some questions. Here are the details:

Me: 34
Spouse: 28

Current portfolio mid-6 figures.

1) I know everyone is different, but my wife and I have a preferred allocation of 85% stock/15% bond. I am planning on using the HSA only for future healthcare expenses, and paying cash for any current expenses (or withdrawing from my taxable account if necessary). I was thinking of putting the entire HSA in stock, or is this too risky? Should I consider the HSA as part of my overall portfolio, or consider it separate?

2) We are thinking to get pregnant soon, and I am trying to decide if I should stay with the HDHP for next year or not. What is the best way to calculate this? Our HDHP has an in-network deductible of $3000 and, annual out of pocket max of $6000, and TOTAL Out of Pocket Max of $12,900. The next plan up has a deductible of $1200, annual out of pocket max also of $6000, and a TOTAL out of pocket max of $13,200. The premium for HDHP is $55.72, for the other plan is $98.30. Running the numbers, I think that the HSA makes more sense, as I can cover the deductible with cash if needed but wanted to see what any advice any of you could provide.

3) Here are the available investments, any recommendations?

COLUMBIA SMALL CAP VALUE II R4


COLUMBIA MID CAP GROWTH R4


COLUMBIA CAPITAL MOD AGRSV R4

COLUMBIA GLOBAL STRATEGIC EQ R

COLUMBIA CAPITAL CONSERV R4

COLUMBIA US TREASURY INDEX Z

PIMCO TOTAL RETURN INSTL

PIMCO LOW DURATION INSTL

AMERICAN FUNDS CAPWLD G&I - F2

BLACKROCK EQUITY DIVIDEND K

COLUMBIA SMALL CAP INDEX Z

COLUMBIA MID CAP INDEX Z

FEDERATED KAUFMANN SMALL CAP I

INVESCO MID CAP GROWTH Y

MAINSTAY LARGE CAP GROWTH I

MAINSTAY HIGH YIELD CORP BOND

THORNBURG INTERNATIONAL VALUE

NEUBERGER BERMAN REAL ESTATE I

PIMCO COMMODITY REAL RETURN

ISHARES MSCI TOTAL INTL IDX K

ISHARES S&P INDEX K
Last edited by erdo on Thu Oct 05, 2017 10:33 pm, edited 1 time in total.

learning_head
Posts: 811
Joined: Sat Apr 10, 2010 6:02 pm

Re: Investing my HSA

Post by learning_head » Thu Oct 05, 2017 10:32 pm

Best financial way to use HSA is the following (and from your OP I think you may already know this). Consider HSA as part of your overall portfolio, like a Roth IRA. Never pay from it until you are retired - the later, the better. Keep receipts for many years (e.g. scan them in) so you can later use HSA funds that have grows tax-free for these old receipts. In the mean time, pay from regular accounts.

As for asset location in HSA vs other accounts, there is a wiki on what should be placed where. Least tax-efficient assets should go to accounts like HSA, Roth, 401k etc.

You could also consider ERs on these funds and whether they are active or passive.

Also, if you don't like the selection check if you can transfer your funds periodically to another HSA with better selections.

erdo
Posts: 28
Joined: Sat Feb 14, 2015 8:31 pm

Re: Investing my HSA

Post by erdo » Thu Oct 05, 2017 10:35 pm

Thanks learning_head! I assumed it would be best to consider it as part of my overall portfolio. I will need to make some adjustments by increasing bond holdings elsewhere.

Olemiss540
Posts: 227
Joined: Fri Aug 18, 2017 8:46 pm

Re: Investing my HSA

Post by Olemiss540 » Fri Oct 06, 2017 10:36 am

erdo wrote:
Thu Oct 05, 2017 10:35 pm
Thanks learning_head! I assumed it would be best to consider it as part of my overall portfolio. I will need to make some adjustments by increasing bond holdings elsewhere.
In my opinion, it is preferred to hold bonds in a IRA, and equities in an HSA and Roth account. Due to tax free growth and withdrawals on the roth and HSA aaccounts, the more these grow the better and while bonds are good for stability and rebalancing, they do not have the expected returns of the equity market.

Spirit Rider
Posts: 6609
Joined: Fri Mar 02, 2007 2:39 pm

Re: Investing my HSA

Post by Spirit Rider » Fri Oct 06, 2017 11:17 am

Olemiss540 wrote:
Fri Oct 06, 2017 10:36 am
erdo wrote:
Thu Oct 05, 2017 10:35 pm
Thanks learning_head! I assumed it would be best to consider it as part of my overall portfolio. I will need to make some adjustments by increasing bond holdings elsewhere.
In my opinion, it is preferred to hold bonds in a IRA, and equities in an HSA and Roth account. Due to tax free growth and withdrawals on the roth and HSA aaccounts, the more these grow the better and while bonds are good for stability and rebalancing, they do not have the expected returns of the equity market.
I would state it a different way.

It is best to hold your tax inefficient assets in tax advantaged space. Then the lower returning tax inefficient assets should be in traditional accounts and the higher returning tax inefficient assets in HSA/Roth accounts. Some of high returning tax inefficient assets are things like REITs, emerging markets, some factor investing and high turnover funds.

A general statement of placing equities in Roth accounts should only occur when your taxable investment space is insufficient to hold the equity component of your asset allocation.

The exception to this may be for those in states (AL, CA, NJ) that tax HSA distributions. In that case you may want to focus on treasuries, state specific munis and/or tax efficient equities such as TSM. This is especially true if the state is NJ which doesn't tax CG or you plan to retire in a state that doesn't tax HSAs.

Olemiss540
Posts: 227
Joined: Fri Aug 18, 2017 8:46 pm

Re: Investing my HSA

Post by Olemiss540 » Fri Oct 06, 2017 11:31 am

Spirit Rider wrote:
Fri Oct 06, 2017 11:17 am
Olemiss540 wrote:
Fri Oct 06, 2017 10:36 am
erdo wrote:
Thu Oct 05, 2017 10:35 pm
Thanks learning_head! I assumed it would be best to consider it as part of my overall portfolio. I will need to make some adjustments by increasing bond holdings elsewhere.
In my opinion, it is preferred to hold bonds in a IRA, and equities in an HSA and Roth account. Due to tax free growth and withdrawals on the roth and HSA aaccounts, the more these grow the better and while bonds are good for stability and rebalancing, they do not have the expected returns of the equity market.
I would state it a different way.

It is best to hold your tax inefficient assets in tax advantaged space. Then the lower returning tax inefficient assets should be in traditional accounts and the higher returning tax inefficient assets in HSA/Roth accounts. Some of high returning tax inefficient assets are things like REITs, emerging markets, some factor investing and high turnover funds.

A general statement of placing equities in Roth accounts should only occur when your taxable investment space is insufficient to hold the equity component of your asset allocation.

The exception to this may be for those in states (AL, CA, NJ) that tax HSA distributions. In that case you may want to focus on treasuries, state specific munis and/or tax efficient equities such as TSM. This is especially true if the state is NJ which doesn't tax CG or you plan to retire in a state that doesn't tax HSAs.
Well stated. I haven't been able to accumulate much in the way of taxable funds, so my worldview influenced the scope of my response. You put it perfectly!

erdo
Posts: 28
Joined: Sat Feb 14, 2015 8:31 pm

Re: Investing my HSA

Post by erdo » Mon Oct 09, 2017 11:41 am

Thank you to all for your help! I will put equities in my HSA, Roth, and taxable account. I will hold bonds in my 403b. Thanks!

EnthusiasticLearner
Posts: 75
Joined: Fri Dec 18, 2015 9:18 am
Location: North

Re: Investing my HSA

Post by EnthusiasticLearner » Mon Oct 09, 2017 11:55 am

Until very recently, BofA had these beauties as investment options:
Vanguard 500 Index Inv
Vanguard Inflation-Protected S
Vanguard Total Intl Stk Index

Which have now been replaced with these respectable choices:
ISHARES MSCI TOTAL INTL IDX K
ISHARES S&P INDEX K

We are only a little older than you with the same AA and started to invest in ISHARES S&P INDEX K the excess of two times our annual OOP max.

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