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Investing HSA and Backdoor Roth IRA

Posted: Tue Jun 19, 2018 11:08 pm
by beabea
Hi! I'm looking for help investing my HSA and a backdoor Roth IRA. I'm fully set on an emergency fund, making progress on student loans and a downpayment, maxing out my 401k, and contributing to a taxable investment account (VTIAX and VTSAX). It seems that an investment focused HSA and backdoor Roth IRA are the next places I should be paying attention to, as they are tax advantaged, and may offer a way to help me rebalance my stock heavy portfolio. For reference, I'm in my early 30s, single, no dependents.

My 401k through work has around $75k, of which 13% is bonds. My taxable account has around $20,000, all in the above stocks. This is far more stock heavy than what the Boglehead's Guide to Investing (which I admit has been my main resource) recommends. Would focusing my HSA and part/all of a backdoor IRA be the right way to resolve that?

My company's HSA offers VBMFX or VBIIX. They each have a gross expense ratio of .15. It also has PTRAX at .76 and TPINX at 1.02 Would any of these be the right call, or should I pick one of the 8 index funds with expense ratios .3 and under and expand the bonds in the 401k?

Similarly, I don't have a IRA and have an income above the contribution limit. Would now be a good time to open one, and with whom? What are the right investments for a Backdoor Roth IRA v. a 401k v. a taxable account?

Thanks for the help!

Re: Investing HSA and Backdoor Roth IRA

Posted: Tue Jun 19, 2018 11:33 pm
by PFInterest
You should be doing a rIRA before taxable investing.
You should put FI in your 401k.
You should open it at Vanguard or Fidelity.

Re: Investing HSA and Backdoor Roth IRA

Posted: Wed Jun 20, 2018 3:28 am
by TwstdSista
Bonds are generally preferred in traditional-type retirement accounts (such as your pre-tax 401k or your HSA). Open the IRAs at Vanguard/Fidelity/Schwab for your Backdoor Roth. Equities are generally preferred in Roth-type accounts.

Agree that you should be maxing out all 401k, IRA and HSA options before investing in a taxable account. Tax efficient equities are usually preferred in a taxable account.

See: https://www.bogleheads.org/wiki/Tax-eff ... _placement

Expense ratios should be kept under 0.20% if possible. If you intend to actually use your HSA for medical expenses, you should keep the funds in safer investments -- such as cash or bonds.

(Oh, and I have no idea what all of those ticker symbols refer to.)

Re: Investing HSA and Backdoor Roth IRA

Posted: Wed Jun 20, 2018 7:34 am
by beabea
Thanks to you both! I'll admit, a backdoor Roth IRA confused me, so I pushed it off. But the second best time to plant a tree is today, so I've made these two issues my financial goals of the summer.

In response to your comments, what is "FI?"

In terms of the HSA, I'm using it to investment purposes, unless there is a very large, unexpected charge I couldn't otherwise handle. The ticker symbols are for Vanguard Interm-Term Bond Index Inv and Vanguard Total Bond Market Index Inv, which are the HSA bond options with reasonable gross expense ratios.

Re: Investing HSA and Backdoor Roth IRA

Posted: Wed Jun 20, 2018 7:45 am
by niceguy7376
In this post chain, FI is Fixed income.

FI can also means Financially Independent in different scenario

Re: Investing HSA and Backdoor Roth IRA

Posted: Thu Jun 21, 2018 5:30 am
by beabea
Thanks for the clarification!

Re: Investing HSA and Backdoor Roth IRA

Posted: Thu Jun 21, 2018 9:53 am
by PFInterest
summer?
you can do this in 1 saturday
https://www.physicianonfire.com/backdoor/

Re: Investing HSA and Backdoor Roth IRA

Posted: Thu Jun 21, 2018 9:58 am
by retiredjg
I'd hold the bond funds in the 401k and HSA. I'd hold stock funds in the 401k, Roth IRA, taxable, and HSA (after a buffer amount in bonds).

Re: Investing HSA and Backdoor Roth IRA

Posted: Fri Jun 22, 2018 9:20 pm
by beabea
PFInterest, thank you! That link and step by step instructions is exactly what I needed!

retiredjg, thanks for the advice. It sounds like that that's a good plan!

Re: Investing HSA and Backdoor Roth IRA

Posted: Sat Jun 23, 2018 2:46 pm
by grabiner
beabea wrote: Wed Jun 20, 2018 7:34 am In terms of the HSA, I'm using it to investment purposes, unless there is a very large, unexpected charge I couldn't otherwise handle. The ticker symbols are for Vanguard Interm-Term Bond Index Inv and Vanguard Total Bond Market Index Inv, which are the HSA bond options with reasonable gross expense ratios.
This means that you should treat the HSA as part of your Roth IRA for investment purposes; both accounts are being invested to cover your expenses in retirement, and you plan to withdraw them tax-free.

One exception: if you live in AL, CA, or NJ, you may want to hold Treasury bonds in your HSA, as these states tax HSAs but Treasury bonds are exempt from state tax.

Re: Investing HSA and Backdoor Roth IRA

Posted: Tue Jul 10, 2018 5:31 am
by beabea
Thanks, grabiner! I executed the changes this week and bore in mind all of everyone's advice!

Re: Investing HSA and Backdoor Roth IRA

Posted: Sun Apr 07, 2019 11:13 am
by PhysicianOnFIRE
beabea wrote: Wed Jun 20, 2018 7:34 am Thanks to you both! I'll admit, a backdoor Roth IRA confused me, so I pushed it off. But the second best time to plant a tree is today, so I've made these two issues my financial goals of the summer.

In response to your comments, what is "FI?"

In terms of the HSA, I'm using it to investment purposes, unless there is a very large, unexpected charge I couldn't otherwise handle. The ticker symbols are for Vanguard Interm-Term Bond Index Inv and Vanguard Total Bond Market Index Inv, which are the HSA bond options with reasonable gross expense ratios.
You've got a week left to initiate a 2018 backdoor Roth with a $5,500 non-deductible contribution to a traditional IRA. No need to wait until summer. You can do that in the next hour. You may have to wait a few days to do the second step, converting to Roth. And you've got a year to do your 2019 backdoor Roth, but you could do it now ($6,000 for 2019) also.

:beer
-PoF

Re: Investing HSA and Backdoor Roth IRA

Posted: Sun Apr 07, 2019 11:37 am
by FoolStreet
retiredjg wrote: Thu Jun 21, 2018 9:58 am I'd hold the bond funds in the 401k and HSA. I'd hold stock funds in the 401k, Roth IRA, taxable, and HSA (after a buffer amount in bonds).
Re: bonds in HSA, Ca and NJ have tax implications, so I have heard you can minimize paperwork by investing in a fund that disburses once per year or quarter, preferably not monthly.

Re: Investing HSA and Backdoor Roth IRA

Posted: Sun Apr 07, 2019 8:45 pm
by grabiner
FoolStreet wrote: Sun Apr 07, 2019 11:37 am
retiredjg wrote: Thu Jun 21, 2018 9:58 am I'd hold the bond funds in the 401k and HSA. I'd hold stock funds in the 401k, Roth IRA, taxable, and HSA (after a buffer amount in bonds).
Re: bonds in HSA, Ca and NJ have tax implications, so I have heard you can minimize paperwork by investing in a fund that disburses once per year or quarter, preferably not monthly.
The paperwork isn't much of an issue if you use accounting software to keep track of the account. Each year, you will pay tax on all of the dividends, so you just add those up.

If you reinvest dividends, you will have a large number of small lots to handle when you sell. If you take dividends in cash, you only add a new lot when you make a purchase.