Strategy for investing in HSA

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tenkuky
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Strategy for investing in HSA

Post by tenkuky »

I am being offered a High Deductible Health Plan (HDHP) with a Health Savings Account (HSA) through HealthEquity for the first time this open enrollment. I've read the wiki and options and have gone back to the administrator with questions around fee/investment options transparency.
With luck, I'll be able to do a 4 fund portfolio of all Vanguard index with the low ERs and an additional 0.4% management fee per year.

My question is related to "rebalancing" and how to handle this over time.
A minimum $2000 has to be in cash (woeful 0.05% interest) before investing, and I hope to put upto $6000 per year pre-tax.
Since I'll need to dip into that for medical expenses incurred in the HDHP (especially if it crosses 2K) what do folks recommend in terms of keeping investment vs. cash ratio?
Doesn't selling (maybe when low) from investment part defeat the long term growth potential of these as a retirement adjunct vehicle?
Doesn't keeping more liquid reduce the allure of having an additional pretax investment account?

I am sold on the concept of HDHP+HSA, not so much on how to invest the latter.
As always, thanks in advance for BH wisdom.
aristotelian
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Re: Strategy for investing in HSA

Post by aristotelian »

My strategy would be to transfer the funds to a provider that does not hold $2,000 hostage and has lower fees.

If possible, invest the whole HSA and cashflow your expenses. I view every out of pocket expense as a contribution to my HSA.
dalmatiandan
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Re: Strategy for investing in HSA

Post by dalmatiandan »

I had a HDHP for about 6 years but only discovered HSA’s in the final 2 years. I opened one with HSA Bank coupled with TD Ameritrade and maxed it out for those 2 years. I wish I had been doing it all along! I have invested every penny except the $5.50/month charge for having the investment account, and I expect I will come out well ahead in the long run.

However, I am now speaking from a more comfortable position of having an outstanding health plan through my spouse’s workplace (hospital). If I was in your position of having a HDHP for the foreseeable future, I would find my annual out-of-pocket maximum, and make sure that that amount is always liquid in the HSA (even above and beyond the $2000 minimum). Then invest the rest!

Since my HSA is now a closed environment with no foreseeable future contributions, I am investing it to mimic my overall AA as a way to ensure increasing safety according to my glide path, then hopefully I will be able to spend on health costs in retirement.

I’m of the opinion that being able to invest your HSA for a long number of years is an incredible benefit and, if possible, you should cash-flow your health costs or at least only keep OOP max in cash in HSA.

Best,
Dan
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Edie
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Re: Strategy for investing in HSA

Post by Edie »

We have a monthly fee that happens when we invest in our HSA that on a percent basis I'm not comfortable with while we've been starting to accrue inside the HSA. As our balance grows to a point where the flat fee drops as a percent, I expect that we will keep just the out of pocket max in our cash account and invest the rest.

That will take us a while as we hit our OOP max every year, so are only adding incrementally to the account as we need to reimburse ourselves for the medical expenses. To date, we have tried to cut back as much as possible in other places so that when we reimburse an expense from the HSA we make a contribution to one of our Roth IRAs since we're not close to maxing those. Last year was our first year to max my 457b (my spouse is disabled, so it's just me with available workplace retirement accounts), but I'm hoping this year to max my 457b, the HSA, and contribute some to Roth IRAs without needing to reimburse from the HSA to do so.

This works for our situation, but others will have different needs, and invest accordingly to their needs. Good luck to you as you determine how to use your HSA for your best benefit!
asif408
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Re: Strategy for investing in HSA

Post by asif408 »

I use my HSA as a hybrid, so to pay for medical expenses, I keep at least the deductible in cash or short-term bond funds. If you have money outside of the HSA you can use to cover this then in theory you don't have to keep the deductible amount safe. If you want to be more conservative keep 1 year OOP max in cash. Assuming you are regularly contributing, you can consider your annual contributions as a source of cash as well, assuming it's through an employer on a regular interval. As you build it up you can invest more aggressively. For example, we have had low medical expenses the last 2 years, so I've got a few years worth of OOP max in the HSA, so I am investing more of it than I did several years ago. So it's really just finding a balance, and the answer will change over time and as your life evolves and your balance grows.

Selling from the investment does defeat some of the long-term growth potential, but if you need the money you need the money. Keeping more liquid doesn't reduce the allure, because it is still a tax-free account if you use it for qualified medical expenses. No other account I am aware of is truly tax free like an HSA.
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tenkuky
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Re: Strategy for investing in HSA

Post by tenkuky »

Brilliant, thanks to all of you.
One problem in transferring out to another HSA provider: no better investment options, plus transfer out fee each time from HealthEquity if I choose to have both, plus monthly fee (for example, no minimum but $4 per month fee).
I have to think re. my vision for this, and I think keeping only OOP max there and rest invested is more acceptable.
That will likely take 2 years given the IRS limits yearly.
It's working out to 0.45% annual expenses to have Vanguard indices in my AA percentages given the 0.4% management fee, detest it but pretax deductions and growth over time are worth it.
aristotelian
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Re: Strategy for investing in HSA

Post by aristotelian »

tenkuky wrote: Wed Apr 25, 2018 10:02 am Brilliant, thanks to all of you.
One problem in transferring out to another HSA provider: no better investment options, plus transfer out fee each time from HealthEquity if I choose to have both, plus monthly fee (for example, no minimum but $4 per month fee).
I have to think re. my vision for this, and I think keeping only OOP max there and rest invested is more acceptable.
That will likely take 2 years given the IRS limits yearly.
It's working out to 0.45% annual expenses to have Vanguard indices in my AA percentages given the 0.4% management fee, detest it but pretax deductions and growth over time are worth it.
Can you simply close the HealthEquity account? I am able to do direct deposits from my employer payroll service to Lively HSA which charges $3/month for the TD Ameritrade Brokerage platform. You can also use their savings account with no minimum balance.
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Darth Xanadu
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Re: Strategy for investing in HSA

Post by Darth Xanadu »

aristotelian wrote: Wed Apr 25, 2018 10:13 am Can you simply close the HealthEquity account? I am able to do direct deposits from my employer payroll service to Lively HSA which charges $3/month for the TD Ameritrade Brokerage platform. You can also use their savings account with no minimum balance.
That's interesting, do you also then get the FICA tax break since it's a payroll deduction? I would have thought employers give you only the option they offer.
aristotelian
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Re: Strategy for investing in HSA

Post by aristotelian »

Darth Xanadu wrote: Wed Apr 25, 2018 10:16 am
aristotelian wrote: Wed Apr 25, 2018 10:13 am Can you simply close the HealthEquity account? I am able to do direct deposits from my employer payroll service to Lively HSA which charges $3/month for the TD Ameritrade Brokerage platform. You can also use their savings account with no minimum balance.
That's interesting, do you also then get the FICA tax break since it's a payroll deduction? I would have thought employers give you only the option they offer.
Still get the deduction. It is through my employer's payroll service so it goes to the HSA before it hits my paycheck.
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tenkuky
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Re: Strategy for investing in HSA

Post by tenkuky »

In quickly researching Lively, they are with TD for ETFs, right?
I see SPTM as Total mkt, very nice ER of 0.03, but the only cheap bond version is a 10 year I-Shares ILTB.
I usually do intermediate term, is long-term worth it?
No cheap international one here though.
Monthly fee $2.5= $ 30 per year, so not asset percentage at least.
At $ 6500 per year of 0.4%, I'm out $ 26 in first year and increasing after.
I don't want to pay a "transfer out fee", so would be great if pretax payroll direct to Lively.
Last edited by tenkuky on Wed Apr 25, 2018 11:07 am, edited 2 times in total.
aristotelian
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Re: Strategy for investing in HSA

Post by aristotelian »

tenkuky wrote: Wed Apr 25, 2018 10:58 am I sent an email to HR based on this, asking re. my options to select my own HSA.
In the meantime, they have not answered my questions about fees esp the "low balance" one for <2500.
I will research Lively.
Just to clarify, my HR was supremely unhelpful. I had to contact my payroll service directly. Don't be deterred if you get bad results from your HR.
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grabiner
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Re: Strategy for investing in HSA

Post by grabiner »

tenkuky wrote: Wed Apr 25, 2018 9:18 am I am being offered a High Deductible Health Plan (HDHP) with a Health Savings Account (HSA) through HealthEquity for the first time this open enrollment. I've read the wiki and options and have gone back to the administrator with questions around fee/investment options transparency.
With luck, I'll be able to do a 4 fund portfolio of all Vanguard index with the low ERs and an additional 0.4% management fee per year.
There is no need to have the HSA itself in a 4-fund portfolio. Since you are investing your HSA (beyond the deductible) and your IRA both for investments in retirement, you can combine the two into one asset allocation.
Since I'll need to dip into that for medical expenses incurred in the HDHP (especially if it crosses 2K) what do folks recommend in terms of keeping investment vs. cash ratio?
Doesn't selling (maybe when low) from investment part defeat the long term growth potential of these as a retirement adjunct vehicle?
What matters is your overall allocation. If you want to sell $2000 in bonds to pay a medical bill, but you don't have any bonds in the HSA, you can sell $2000 in stock in the HSA, and move $2000 from bonds to stock in your IRA or 401(k), keeping the same stock growth.
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indexfundfan
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Re: Strategy for investing in HSA

Post by indexfundfan »

tenkuky wrote: Wed Apr 25, 2018 10:58 am In quickly researching Lively, they are with TD for ETFs, right?
I see SPTM as Total mkt, very nice ER of 0.03, but the only cheap bond version is a 10 year I-Shares ILTB.
I usually do intermediate term, is long-term worth it?
No cheap international one here though.
Monthly fee $2.5= $ 30 per year, so not asset percentage at least.
At $ 6500 per year of 0.4%, I'm out $ 26 in first year and increasing after.
I don't want to pay a "transfer out fee", so would be great if pretax payroll direct to Lively.
Look at ETFs from this list:

https://us.spdrs.com/en/strategies/spdr ... folio-etfs
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Topic Author
tenkuky
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Re: Strategy for investing in HSA

Post by tenkuky »

grabiner wrote: Wed Apr 25, 2018 10:40 pm
tenkuky wrote: Wed Apr 25, 2018 9:18 am I am being offered a High Deductible Health Plan (HDHP) with a Health Savings Account (HSA) through HealthEquity for the first time this open enrollment. I've read the wiki and options and have gone back to the administrator with questions around fee/investment options transparency.
With luck, I'll be able to do a 4 fund portfolio of all Vanguard index with the low ERs and an additional 0.4% management fee per year.
There is no need to have the HSA itself in a 4-fund portfolio. Since you are investing your HSA (beyond the deductible) and your IRA both for investments in retirement, you can combine the two into one asset allocation.
Since I'll need to dip into that for medical expenses incurred in the HDHP (especially if it crosses 2K) what do folks recommend in terms of keeping investment vs. cash ratio?
Doesn't selling (maybe when low) from investment part defeat the long term growth potential of these as a retirement adjunct vehicle?
What matters is your overall allocation. If you want to sell $2000 in bonds to pay a medical bill, but you don't have any bonds in the HSA, you can sell $2000 in stock in the HSA, and move $2000 from bonds to stock in your IRA or 401(k), keeping the same stock growth.
Thanks, grabiner. I forgot to consider one big AA pot, I have to learn to get out of my "each account needs its own AA".
Will do, makes life easier since I needed to up my bond allocation anyway relative to all my retirement accounts.
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