HSA's - when does it make sense?

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mwow83
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Joined: Sun Jul 01, 2012 10:31 pm

HSA's - when does it make sense?

Post by mwow83 »

General question about HSAs. When does it makes sense to fully contribute to my HSA and use it as an investment strategy?

If I follow the prioritizing investments wiki (https://www.bogleheads.org/wiki/Priorit ... nvestments I would fully contribute to my HSA. Below are my available funds. In addition to the fund fees I would be charged $2.90 each month.

Thoughts in general and thoughts on asset allocation? Thanks so much.

Vanguard Total Stock Market Index VITSX (0.04)
Vanguard Midcap Index VIMAX (0.06)
Vanguard Small Cap Index VSMAX (0.06)
Vanguard Total International Stock Index VTIAX (0.11)
Vanguard Total Bond Market Index VBTLX (0.05)
American Century Aggressive Alloc AAAIX (0.96)
MFS Aggressive Growth Allocation MIAGX (0.87)
MFS Moderate Allocation MMAIX (0.73)
MFS Conservative Allocation MACIX (0.68)
Ivy Asset Strategy IVAEX (0.85)
Mjar
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Re: HSA's - when does it make sense?

Post by Mjar »

mwow83 wrote: Wed Aug 01, 2018 12:44 pm General question about HSAs. When does it makes sense to fully contribute to my HSA and use it as an investment strategy?

If I follow the prioritizing investments wiki (https://www.bogleheads.org/wiki/Priorit ... nvestments I would fully contribute to my HSA. Below are my available funds. In addition to the fund fees I would be charged $2.90 each month.

Thoughts in general and thoughts on asset allocation? Thanks so much.

Vanguard Total Stock Market Index VITSX (0.04)
Vanguard Midcap Index VIMAX (0.06)
Vanguard Small Cap Index VSMAX (0.06)
Vanguard Total International Stock Index VTIAX (0.11)
Vanguard Total Bond Market Index VBTLX (0.05)
American Century Aggressive Alloc AAAIX (0.96)
MFS Aggressive Growth Allocation MIAGX (0.87)
MFS Moderate Allocation MMAIX (0.73)
MFS Conservative Allocation MACIX (0.68)
Ivy Asset Strategy IVAEX (0.85)
Right after you max out other tax deferred accounts in 401k, IRA and Roth IRA and when you have the cash available to do so after taking care of your month to month expenses...then max out HSA....just MHO

I am at that stage and want to max out my HSA as my monthly budgeting accounts for health care bills out of pocket so I treat the HSA as a extension of my retirement accounts. But I can't change my contribution level until April 2019 when new health care elections can be made w/o a life event occuring. My current balance in HSA is all in a VITSX and YTD I am at well over 6% return this year.
soccerrules
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Re: HSA's - when does it make sense?

Post by soccerrules »

My HSA is contingent on choosing the HDHP, which I would think for most is contingent on your/covered persons health needs. If we had need for different health coverage due to chronic health issues, having babies -etc. I might have chosen a different benefit package (sans HSA).

I chose HDHP with HSA because we are general healthy and my employer chips in $2000 a year to HSA account whether I add any of not (I add $200/mo). I am cash flowing actual health care out of pocket expenses and saving the receipts for a later time.

My HSA is less than 1% of my portfolio currently so it doesn't get much attention. :shock:
Don't let your outflow exceed your income or your upkeep will be your downfall.
AnonJohn
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Re: HSA's - when does it make sense?

Post by AnonJohn »

Agree with other posters re: maxing other tax-advantaged accounts.

Two other considerations:
1. Sometimes, even with high predicted health costs, HSAs make sense. My wife gave birth this year. Accounting for tax-savings (from maxing contributions and doing so pre-tax), premium savings, and health insurance contributions to the HSA, I'm up about $700 even after meeting the deductible (ignoring value of future tax-free growth). Co-pays could yet erode that, but I doubt it (PPO had co-pays too). Need to do the math; plan and tax-rate dependent.

2. HSA accounts won't count (under current FAFSA) toward EFCs for financial aid. Over 15+ years and two kids I project significant savings. Tens of thousands. Maybe over $60k. If savings and career end up meaning no financial aid, well, that's a good thing too!
chrissyp
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Re: HSA's - when does it make sense?

Post by chrissyp »

There is a lot of worry with HSAs cause they don't follow the same essential fee rules that other account investment require. More or less it depends on your deductible and plan. There is no way to really pull funds for qualified expenses or 72t the plans with 401k etc. However the tax savings if you are in anything other than the 12 percent bracket makes the fee worth it.

If you have a family or plan to the deductible on just about all insurance plans will be higher. There is a higher chance you will get sick before you die. HSAs can pay for COBRA/medical expenses not exceeding a percentage which is a requirement of other accounts and can be used for a lot of medications.

As far as the fees there are some banks like Optum that have almost no fees and vanguard funds that you can always xfer out to them.

Finally if you die and want to xfer to spouse or kids they only have to pay ordinary income taxes to cash it out.
Glockenspiel
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Re: HSA's - when does it make sense?

Post by Glockenspiel »

Once you are contributing enough to get your full employer's 401k match, then it's time to max out HSA's as an investment tool. You can't get any better tax treatment.
Iridium
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Re: HSA's - when does it make sense?

Post by Iridium »

Glockenspiel wrote: Wed Aug 01, 2018 3:01 pm Once you are contributing enough to get your full employer's 401k match, then it's time to max out HSA's as an investment tool. You can't get any better tax treatment.
I believe this is usually the right answer, especially when you have such good investment options in the HSA. The only exception I have encountered is that my state does not recognize HSAs. I would say HSA (beyond expected medical needs) would slot after other tax advantaged retirement accounts in that case.
ge1
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Re: HSA's - when does it make sense?

Post by ge1 »

Iridium wrote: Wed Aug 01, 2018 3:41 pm
Glockenspiel wrote: Wed Aug 01, 2018 3:01 pm Once you are contributing enough to get your full employer's 401k match, then it's time to max out HSA's as an investment tool. You can't get any better tax treatment.
I believe this is usually the right answer, especially when you have such good investment options in the HSA. The only exception I have encountered is that my state does not recognize HSAs. I would say HSA (beyond expected medical needs) would slot after other tax advantaged retirement accounts in that case.
I have to admit I don’t understand that, how can a state not recognize a HSA? I agree with Glockenspiel, it’s the single best investment vehicle from a tax perspective.
nolesrule
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Re: HSA's - when does it make sense?

Post by nolesrule »

ge1 wrote: Wed Aug 01, 2018 6:31 pm
Iridium wrote: Wed Aug 01, 2018 3:41 pm
Glockenspiel wrote: Wed Aug 01, 2018 3:01 pm Once you are contributing enough to get your full employer's 401k match, then it's time to max out HSA's as an investment tool. You can't get any better tax treatment.
I believe this is usually the right answer, especially when you have such good investment options in the HSA. The only exception I have encountered is that my state does not recognize HSAs. I would say HSA (beyond expected medical needs) would slot after other tax advantaged retirement accounts in that case.
I have to admit I don’t understand that, how can a state not recognize a HSA? I agree with Glockenspiel, it’s the single best investment vehicle from a tax perspective.
There are a few states that do not give the HSA the same tax treatment for state tax purposes. So that means investments are treated like a taxable brokerage account for state taxes, but without any of the nice forms you'd get with taxable events in a brokerage account, so you have to track your own cost basis. And even "better", if the HSA changes the investment lineup, any liquidation of your current investments would be a taxable event.

I live in New Jersey, which doesn't recognize HSAs, so I only invest in a US treasuries fund that isn't taxable by the state.
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grabiner
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Re: HSA's - when does it make sense?

Post by grabiner »

Iridium wrote: Wed Aug 01, 2018 3:41 pm
Glockenspiel wrote: Wed Aug 01, 2018 3:01 pm Once you are contributing enough to get your full employer's 401k match, then it's time to max out HSA's as an investment tool. You can't get any better tax treatment.
I believe this is usually the right answer, especially when you have such good investment options in the HSA. The only exception I have encountered is that my state does not recognize HSAs. I would say HSA (beyond expected medical needs) would slot after other tax advantaged retirement accounts in that case.
The HSA is still a federally tax-advantaged retirement account, with a subsidy on contributions; you will be able to withdraw the money tax-free in retirement. Even in AL, CA, or NJ, which do not recognize HSAs, it's still a better deal than unmatched retirement contributions.

Say you are in a 22% federal tax bracket. You can contribute $1000 to your HSA and invest it in Treasury bonds (which are state tax-exempt, and which are part of most portfolios), or $780 to your Roth IRA. Both will grow tax-free if used for medical costs in retirement, but the HSA will be larger.

If you do have a large HSA invested in Treasury bonds, you can adjust the rest of your portfolio, such as by holding a corporate bond fund rather than a total-market bond fund in your 401(k).
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JBTX
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Re: HSA's - when does it make sense?

Post by JBTX »

It always make sense to to fund the HSA. That is a no brainer. You get permanent tax reduction of your income, as well as FICA reduction (if you are under FICA limit).

The question becomes whether you want to keep it there as an investment, or deplete it as soon as you can with medical expenses. For various reasons, I always funded it, and depleted it whenever I could. I funded 401k and Roth, and funded then depleted HSA's. If I had more liquidity, I may have kept it in the HSA as an investment.
JustinR
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Re: HSA's - when does it make sense?

Post by JustinR »

Use Lively as your HSA custodian. $2.50 a month and you have access to all available funds and ETFs at TD Ameritrade.
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Re: HSA's - when does it make sense?

Post by Dottie57 »

If you can cash flow medical expenses and fully fund retirement accounts, HSA is a good tax deferment acct.
aristotelian
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Re: HSA's - when does it make sense?

Post by aristotelian »

Assuming you are already have the HDHP, HSA always make sense. Pretax on the contribution, tax free on the withdrawal. There is no better vehicle out there for investing. Top priority after employer match.
Topic Author
mwow83
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Re: HSA's - when does it make sense?

Post by mwow83 »

Greatly appreciate all of the responses. I will absolutely continue to fully fund my HSA each year. My employer has an agreement with Benefit Wallet - in my opinion their app sucks and their website is clunky on the reimbursement and investments side. They also put a $1k hold if you plan to invest - meaning if I had $1500 in my investment account, I can only invest $500 of it. They also charge a $2.90 fee each month.

1. Am I able to chose another HSA such as Lively or Optum? If so, I guess my contributions wouldn't be instantly tax deductible as they are with Benefit Wallet as it comes immediately out of my pay check.

2. Should I just stay in my current HSA? If so, below are my fund options - just put it all in VITSX or is there a better path?

Vanguard Total Stock Market Index VITSX (0.04)
Vanguard Midcap Index VIMAX (0.06)
Vanguard Small Cap Index VSMAX (0.06)
Vanguard Total International Stock Index VTIAX (0.11)
Vanguard Total Bond Market Index VBTLX (0.05)
American Century Aggressive Alloc AAAIX (0.96)
MFS Aggressive Growth Allocation MIAGX (0.87)
MFS Moderate Allocation MMAIX (0.73)
MFS Conservative Allocation MACIX (0.68)
Ivy Asset Strategy IVAEX (0.85)
arsenalfan
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Re: HSA's - when does it make sense?

Post by arsenalfan »

mwow83 wrote: Thu Aug 02, 2018 7:02 am Greatly appreciate all of the responses. I will absolutely continue to fully fund my HSA each year. My employer has an agreement with Benefit Wallet - in my opinion their app sucks and their website is clunky on the reimbursement and investments side. They also put a $1k hold if you plan to invest - meaning if I had $1500 in my investment account, I can only invest $500 of it. They also charge a $2.90 fee each month.

1. Am I able to chose another HSA such as Lively or Optum? If so, I guess my contributions wouldn't be instantly tax deductible as they are with Benefit Wallet as it comes immediately out of my pay check.

2. Should I just stay in my current HSA? If so, below are my fund options - just put it all in VITSX or is there a better path?

Vanguard Total Stock Market Index VITSX (0.04)
Vanguard Midcap Index VIMAX (0.06)
Vanguard Small Cap Index VSMAX (0.06)
Vanguard Total International Stock Index VTIAX (0.11)
Vanguard Total Bond Market Index VBTLX (0.05)
American Century Aggressive Alloc AAAIX (0.96)
MFS Aggressive Growth Allocation MIAGX (0.87)
MFS Moderate Allocation MMAIX (0.73)
MFS Conservative Allocation MACIX (0.68)
Ivy Asset Strategy IVAEX (0.85)
I'd stick with BenefitWallet given the integration with your Benefits department. But you can transfer HSA custodians once per year I think.

Consider funding the HSA in one lump, then you just have to do one transaction. When I had BenefitWallet, I'd donate $6900 in Jan, then do one $5900 VITSX buy.

Every year I'd forget the interface, as the links are totally hidden and it's not intuitive. I wrote myself a how-to note, so I wouldn't have to relearn every 12 months.
asif408
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Re: HSA's - when does it make sense?

Post by asif408 »

I have 2 HSA's. You can have as many as you like. I have one that I and my employer contributes to, that I then periodically move the money to the other account where I invest. As long as you do a trustee-to-trustee transfer and not a rollover, you can move money as often as you like from HSA to HSA, similar to an IRA.

My suggestion would be keep your current HSA and contribute to that one through your employer, but consider opening another HSA and then move the money you want to invest periodically to the other HSA provider, unless you are happy with your investment choices currently, in which case you could just keep it there. Overall, I think the options you have are decent; you have all the components of a basic three fund portfolio for low cost.
thefoggycity
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Re: HSA's - when does it make sense?

Post by thefoggycity »

I am wondering, if an HSA is invested versus kept in cash, is there a penalty for withdrawing it for medical expenses? Do you have to keep it invested for a certain amount of time before withdrawing? Last, how much cash vs invested funds do folks recommend?
asif408
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Re: HSA's - when does it make sense?

Post by asif408 »

thefoggycity wrote: Thu Aug 02, 2018 8:02 am I am wondering, if an HSA is invested versus kept in cash, is there a penalty for withdrawing it for medical expenses? Do you have to keep it invested for a certain amount of time before withdrawing? Last, how much cash vs invested funds do folks recommend?
There is no penalty for withdrawing for medical expenses that I am aware of, whether it is in cash or investing. I'm not aware of any restrictions on keeping things invested for a certain amount of time.

How much cash vs invested funds is a matter of preference. If you will need the money for medical expenses soon better not to invest or invest conservatively. If you don't need the money for medical expenses soon and can afford to pay out of pocket it is better to invest and reimburse yourself down the road, taking advantage of the tax free growth.
deltaneutral83
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Re: HSA's - when does it make sense?

Post by deltaneutral83 »

Why is the question "If you have good funds inside your HSA" asked with regards to an HSA? Lively does $2.50 all in/month and access to State Street's ETF's commission free where you can build a 3F however you wish at expense ratios that are the same as Vanguard. Do some employers mandate you use the employer sponsored HSA with high expense ratios/fees?
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mmmodem
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Re: HSA's - when does it make sense?

Post by mmmodem »

When does an HSA not make sense? That's a tougher question to ask.

I fund mine fully after 401k matching. My work HSA is also with benefitwallet and I find it lacking versus my previous employer's HSA with Optum. Therefore, I have decided to keep both accounts. I will transfer over contributions from Benefitwallet to Optum. I choose to contribute per paycheck rather than lump sum because you must be on an HDHP the entire year. If you lose coverage before the end of the year, you're contribution maximum is prorated. I choose to pay every health bill immediately from the HSA instead of waiting because I do not want the complexities of saving receipts for decades. My retirement is on track as it is so I'd rather reap the rewards of an HSA immediately. This also decreases the size of my emergency fund as the HSA more than covers any health emergency.
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vitaflo
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Re: HSA's - when does it make sense?

Post by vitaflo »

Honestly, I would fund it before your 401k. Meaning, it's the first place I'd put money. It's the only investment that is tax-free both in and out (if used for medical expenses). And if you don't use it for medical expenses you can still use it at a retirement account and start withdrawing at 65.

It's literally a retirement account with extra benefits that other retirement accounts don't have.
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Edie
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Re: HSA's - when does it make sense?

Post by Edie »

Mjar wrote: Wed Aug 01, 2018 1:01 pm
mwow83 wrote: Wed Aug 01, 2018 12:44 pm General question about HSAs. When does it makes sense to fully contribute to my HSA and use it as an investment strategy?

If I follow the prioritizing investments wiki (https://www.bogleheads.org/wiki/Priorit ... nvestments I would fully contribute to my HSA. Below are my available funds. In addition to the fund fees I would be charged $2.90 each month.

Thoughts in general and thoughts on asset allocation? Thanks so much.

Vanguard Total Stock Market Index VITSX (0.04)
Vanguard Midcap Index VIMAX (0.06)
Vanguard Small Cap Index VSMAX (0.06)
Vanguard Total International Stock Index VTIAX (0.11)
Vanguard Total Bond Market Index VBTLX (0.05)
American Century Aggressive Alloc AAAIX (0.96)
MFS Aggressive Growth Allocation MIAGX (0.87)
MFS Moderate Allocation MMAIX (0.73)
MFS Conservative Allocation MACIX (0.68)
Ivy Asset Strategy IVAEX (0.85)
Right after you max out other tax deferred accounts in 401k, IRA and Roth IRA and when you have the cash available to do so after taking care of your month to month expenses...then max out HSA....just MHO

I am at that stage and want to max out my HSA as my monthly budgeting accounts for health care bills out of pocket so I treat the HSA as a extension of my retirement accounts. But I can't change my contribution level until April 2019 when new health care elections can be made w/o a life event occuring. My current balance in HSA is all in a VITSX and YTD I am at well over 6% return this year.
I bolded a piece of your quote to share some information. It doesn't seem like you know this piece, so I wanted to share that you do not have to go through payroll to increase your contributions to an HSA. You can deposit money directly into your HSA, and receive the tax benefit (except for social security and medicare taxes, those tax breaks only apply when done through payroll) when you file your tax return. You can see this information here (HSA tax considerations) in the wiki. Your payroll contribution + your employer contribution (if any) + your outside payroll contribution must be equal or less than the limit which applies to you, but that third piece is available if you're not maxing through the first two. Hope that is helpful information for you.
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Re: HSA's - when does it make sense?

Post by Glockenspiel »

vitaflo wrote: Thu Aug 02, 2018 8:55 am Honestly, I would fund it before your 401k. Meaning, it's the first place I'd put money. It's the only investment that is tax-free both in and out (if used for medical expenses). And if you don't use it for medical expenses you can still use it at a retirement account and start withdrawing at 65.

It's literally a retirement account with extra benefits that other retirement accounts don't have.
I almost agree with this, but if you get a 100% match on your first 4% of 401k, you can't pass up that free money. Free money is (slightly) better than your own money that is 100% tax-free.
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vitaflo
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Re: HSA's - when does it make sense?

Post by vitaflo »

Glockenspiel wrote: Thu Aug 02, 2018 9:33 am
vitaflo wrote: Thu Aug 02, 2018 8:55 am Honestly, I would fund it before your 401k. Meaning, it's the first place I'd put money. It's the only investment that is tax-free both in and out (if used for medical expenses). And if you don't use it for medical expenses you can still use it at a retirement account and start withdrawing at 65.

It's literally a retirement account with extra benefits that other retirement accounts don't have.
I almost agree with this, but if you get a 100% match on your first 4% of 401k, you can't pass up that free money. Free money is (slightly) better than your own money that is 100% tax-free.
This is a good point. I'm self-employed, so no match. ;) But yes, if you get employee match, do that first, then HSA.
Mjar
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Re: HSA's - when does it make sense?

Post by Mjar »

Edie wrote: Thu Aug 02, 2018 9:20 am
Mjar wrote: Wed Aug 01, 2018 1:01 pm
mwow83 wrote: Wed Aug 01, 2018 12:44 pm General question about HSAs. When does it makes sense to fully contribute to my HSA and use it as an investment strategy?

If I follow the prioritizing investments wiki (https://www.bogleheads.org/wiki/Priorit ... nvestments I would fully contribute to my HSA. Below are my available funds. In addition to the fund fees I would be charged $2.90 each month.

Thoughts in general and thoughts on asset allocation? Thanks so much.

Vanguard Total Stock Market Index VITSX (0.04)
Vanguard Midcap Index VIMAX (0.06)
Vanguard Small Cap Index VSMAX (0.06)
Vanguard Total International Stock Index VTIAX (0.11)
Vanguard Total Bond Market Index VBTLX (0.05)
American Century Aggressive Alloc AAAIX (0.96)
MFS Aggressive Growth Allocation MIAGX (0.87)
MFS Moderate Allocation MMAIX (0.73)
MFS Conservative Allocation MACIX (0.68)
Ivy Asset Strategy IVAEX (0.85)
Right after you max out other tax deferred accounts in 401k, IRA and Roth IRA and when you have the cash available to do so after taking care of your month to month expenses...then max out HSA....just MHO

I am at that stage and want to max out my HSA as my monthly budgeting accounts for health care bills out of pocket so I treat the HSA as a extension of my retirement accounts. But I can't change my contribution level until April 2019 when new health care elections can be made w/o a life event occuring. My current balance in HSA is all in a VITSX and YTD I am at well over 6% return this year.
I bolded a piece of your quote to share some information. It doesn't seem like you know this piece, so I wanted to share that you do not have to go through payroll to increase your contributions to an HSA. You can deposit money directly into your HSA, and receive the tax benefit (except for social security and medicare taxes, those tax breaks only apply when done through payroll) when you file your tax return. You can see this information here (HSA tax considerations) in the wiki. Your payroll contribution + your employer contribution (if any) + your outside payroll contribution must be equal or less than the limit which applies to you, but that third piece is available if you're not maxing through the first two. Hope that is helpful information for you.
Edie,
thank you for clarifying my statement. I know what you are talking about, I should have been more clearer. What I meant was based on automation contribution, I do make outside contribution to HSA when I have it but for this remaining "health" year I have to do it on the side like you mentioned. Thanks!
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Re: HSA's - when does it make sense?

Post by jebmke »

Glockenspiel wrote: Wed Aug 01, 2018 3:01 pm Once you are contributing enough to get your full employer's 401k match, then it's time to max out HSA's as an investment tool. You can't get any better tax treatment.
HSAs are a no-brainer for almost everyone who can take advantage of the income adjustment. The closest thing to legal money-laundering for an average taxpayer.
When you discover that you are riding a dead horse, the best strategy is to dismount.
Jablean
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Re: HSA's - when does it make sense?

Post by Jablean »

mmmodem wrote: Thu Aug 02, 2018 8:46 am When does an HSA not make sense? That's a tougher question to ask.

I fund mine fully after 401k matching. My work HSA is also with benefitwallet and I find it lacking versus my previous employer's HSA with Optum. Therefore, I have decided to keep both accounts. I will transfer over contributions from Benefitwallet to Optum. I choose to contribute per paycheck rather than lump sum because you must be on an HDHP the entire year. If you lose coverage before the end of the year, you're contribution maximum is prorated. I choose to pay every health bill immediately from the HSA instead of waiting because I do not want the complexities of saving receipts for decades. My retirement is on track as it is so I'd rather reap the rewards of an HSA immediately. This also decreases the size of my emergency fund as the HSA more than covers any health emergency.
Why would you save receipts for years? I did the pay from HSA for current medical over the past two years but this year I'm taking the longer term view and looking at it as building funds for medical treatment in our retirement. And hopefully by investing I'll have more than what I put in.
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Re: HSA's - when does it make sense?

Post by jebmke »

Jablean wrote: Thu Aug 02, 2018 1:33 pm Why would you save receipts for years? I did the pay from HSA for current medical over the past two years but this year I'm taking the longer term view and looking at it as building funds for medical treatment in our retirement. And hopefully by investing I'll have more than what I put in.
Even if you don't reimburse right way the receipts will support a later reimbursement for those expenses.
When you discover that you are riding a dead horse, the best strategy is to dismount.
1CEBITN
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Re: HSA's - when does it make sense?

Post by 1CEBITN »

vitaflo wrote: Thu Aug 02, 2018 8:55 am Honestly, I would fund it before your 401k. Meaning, it's the first place I'd put money. It's the only investment that is tax-free both in and out (if used for medical expenses). And if you don't use it for medical expenses you can still use it at a retirement account and start withdrawing at 65.

It's literally a retirement account with extra benefits that other retirement accounts don't have.
It is not tax-free when used for non-medical expenses. Even post-65 you will still be taxed on the withdrawals as ordinary income. You just avoid the 20% penalty compared to doing so pre-65.
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Re: HSA's - when does it make sense?

Post by RickBoglehead »

JBTX wrote: Wed Aug 01, 2018 8:27 pm It always make sense to to fund the HSA. That is a no brainer. You get permanent tax reduction of your income, as well as FICA reduction (if you are under FICA limit).

The question becomes whether you want to keep it there as an investment, or deplete it as soon as you can with medical expenses. For various reasons, I always funded it, and depleted it whenever I could. I funded 401k and Roth, and funded then depleted HSA's. If I had more liquidity, I may have kept it in the HSA as an investment.
This ^^^

We were in an HSA for a short period (as employer modified plans), and couldn't pick investments because we never got the balance high enough. Limited to a lousy 1% interest rate, and then $3 monthly fees (due to no longer being in the plan), we've drawn it down every chance we get. Luckily we're healthy, which just means it takes longer to draw it down.

IF I had investment options, or did in the future, I would max it out and wait for retirement, assuming monthly fees were non-existent / negligible.
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AlphaPilot
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Re: HSA's - when does it make sense?

Post by AlphaPilot »

As mentioned earlier but not in detail - Can any HSA account be transferred from to a different HSA that *does* allow investments without penalty? In the case where an employer offers a standard HSA that is just basically a savings account but offers some match, it would be the best of both worlds to then transfer from that to the HSA with investments perk. However, is paying the monthly fee worth it, then? I guess as long as there is enough money in the HSA and it yields good return the fee will be covered.
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Re: HSA's - when does it make sense?

Post by ebrasmus21 »

grabiner wrote: Wed Aug 01, 2018 8:18 pm
Iridium wrote: Wed Aug 01, 2018 3:41 pm
Glockenspiel wrote: Wed Aug 01, 2018 3:01 pm Once you are contributing enough to get your full employer's 401k match, then it's time to max out HSA's as an investment tool. You can't get any better tax treatment.
I believe this is usually the right answer, especially when you have such good investment options in the HSA. The only exception I have encountered is that my state does not recognize HSAs. I would say HSA (beyond expected medical needs) would slot after other tax advantaged retirement accounts in that case.
The HSA is still a federally tax-advantaged retirement account, with a subsidy on contributions; you will be able to withdraw the money tax-free in retirement. Even in AL, CA, or NJ, which do not recognize HSAs, it's still a better deal than unmatched retirement contributions.

Say you are in a 22% federal tax bracket. You can contribute $1000 to your HSA and invest it in Treasury bonds (which are state tax-exempt, and which are part of most portfolios), or $780 to your Roth IRA. Both will grow tax-free if used for medical costs in retirement, but the HSA will be larger.

If you do have a large HSA invested in Treasury bonds, you can adjust the rest of your portfolio, such as by holding a corporate bond fund rather than a total-market bond fund in your 401(k).
Treasury bonds are not taxed at the state level? Does this include the people's republic of California?
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Re: HSA's - when does it make sense?

Post by thefoggycity »

asif408 wrote: Thu Aug 02, 2018 8:20 am
thefoggycity wrote: Thu Aug 02, 2018 8:02 am I am wondering, if an HSA is invested versus kept in cash, is there a penalty for withdrawing it for medical expenses? Do you have to keep it invested for a certain amount of time before withdrawing? Last, how much cash vs invested funds do folks recommend?
There is no penalty for withdrawing for medical expenses that I am aware of, whether it is in cash or investing. I'm not aware of any restrictions on keeping things invested for a certain amount of time.

How much cash vs invested funds is a matter of preference. If you will need the money for medical expenses soon better not to invest or invest conservatively. If you don't need the money for medical expenses soon and can afford to pay out of pocket it is better to invest and reimburse yourself down the road, taking advantage of the tax free growth.
Got it, thank you.
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Re: HSA's - when does it make sense?

Post by grabiner »

ebrasmus21 wrote: Thu Aug 02, 2018 4:41 pm Treasury bonds are not taxed at the state level? Does this include the people's republic of California?
This is a federal law; no state can tax interest on Treasury bonds.

States do vary in how they handle mutual funds which include Treasury bonds. In most states, you may exclude that portion of the dividends which represent Treasury bonds. CA is one of a few states which gives no exclusion unless a fund holds at least 50% of its assets in bonds exempt from CA tax. But a fund which holds only Treasuries (including TIPS) is exempt from tax in all states, so it is a good choice for an HSA in CA (and also in AL or NJ).
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ebrasmus21
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Re: HSA's - when does it make sense?

Post by ebrasmus21 »

grabiner wrote: Thu Aug 02, 2018 7:09 pm
ebrasmus21 wrote: Thu Aug 02, 2018 4:41 pm Treasury bonds are not taxed at the state level? Does this include the people's republic of California?
This is a federal law; no state can tax interest on Treasury bonds.

States do vary in how they handle mutual funds which include Treasury bonds. In most states, you may exclude that portion of the dividends which represent Treasury bonds. CA is one of a few states which gives no exclusion unless a fund holds at least 50% of its assets in bonds exempt from CA tax. But a fund which holds only Treasuries (including TIPS) is exempt from tax in all states, so it is a good choice for an HSA in CA (and also in AL or NJ).
Thank you. I'll have to check but I believe my HSA has an option for a TIPS only fund. Since I'm in CA that might be a worthy option for me.
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mwow83
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Re: HSA's - when does it make sense?

Post by mwow83 »

Currently I have $132.69 automatically taken out of each weekly paycheck and contributed to my HSA - so I hit $6,900 at years end. If I go ahead and contribute a lump sum to hit my annual family maximum today, does my weekly payroll deduction stop?
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Re: HSA's - when does it make sense?

Post by grabiner »

mwow83 wrote: Fri Aug 03, 2018 3:48 am Currently I have $132.69 automatically taken out of each weekly paycheck and contributed to my HSA - so I hit $6,900 at years end. If I go ahead and contribute a lump sum to hit my annual family maximum today, does my weekly payroll deduction stop?
It probably won't stop, because your employer does not know about your contribution. The bank which receives your contributions is not responsible for rejecting a deposit that might be over the limit (or might not, if, say, you were eligible for catch-up contributions).

This is in contrast to a 401(k), in which all contributions are made through payroll deduction; your employer knows not to go over the limit. Even there, if you change jobs during the year, your second employer's payroll software will not know how much you contributed at your first employer.
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