HSA Portfolio Strategy Assessment

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Coltrane75
Posts: 95
Joined: Wed Feb 06, 2019 2:32 pm

HSA Portfolio Strategy Assessment

Post by Coltrane75 » Thu Feb 13, 2020 12:37 pm

Hi all,
I have an HDHP with an HSA Account with my employer.

I'd like to employ a hybrid approach of using the HSA account as both a long term investment account and a savings account for current medical expenses.

The goal is achieve a happy medium between spending a moderate amount out of pocket while also trying to grow the HSA.

Please let me know what you think of the approach.

Health Insurance Details:
Deductible: $3000
Co-pay: 25/75 (me/insurance)
Out of Pocket Maximum: $6500

HSA Contribution (Maximized):
Employer: $1200
Me: $5900

Current Balance: $7500

Spending Approach:
1. Spend, out of cashflow/pocket, no more than $3000 per year (2% of gross annual income) for the initial expenses of the deductible.
2. Withdraw the remaining $3500 of deductible per year from the HSA account (at which point we would hit the OOP Max).
3. As a result of 1 and 2, the HSA would grow by contributions in a year by a minimum net amount of $3600 and a max, if no expenses, of $7100.
4. Maximum Annual Withdrawal from HSA account would be $3500.

Investing Approach:
1. $1500 in cash account per the requirements of the plan.
2. Invest 3 years worth of maximum with withdrawals ($3500 x 3) in a 50/50 mix of Vanguard ST Bond Index & Vanguard Short Term TIPS
3. Invest next 4 years worth of maximum withdrawals ($3500 x 4) in a 50/50 mix of Vanguard Total Bond Index & Vanguard Intermediate TIPS
4. Invest any additional funds in Vanguard Total World Index (Stocks)

Jablean
Posts: 493
Joined: Sat Jun 02, 2018 2:38 pm

Re: HSA Portfolio Strategy Assessment

Post by Jablean » Thu Feb 13, 2020 2:40 pm

I would pick one thing to do with your investment funds and not break it into three buckets.

Topic Author
Coltrane75
Posts: 95
Joined: Wed Feb 06, 2019 2:32 pm

Re: HSA Portfolio Strategy Assessment

Post by Coltrane75 » Thu Feb 13, 2020 2:49 pm

Jablean wrote:
Thu Feb 13, 2020 2:40 pm
I would pick one thing to do with your investment funds and not break it into three buckets.
Is that for more simplicity? The approach I have is a bit complicated.

Maybe instead, after I hit about 6 to 7 years worth of potential withdrawals maybe I just switch from Short Term to Total Bond and then any money thereafter mix in some stock.

Jablean
Posts: 493
Joined: Sat Jun 02, 2018 2:38 pm

Re: HSA Portfolio Strategy Assessment

Post by Jablean » Fri Feb 14, 2020 6:33 pm

Yes you are making things complicated by dividing a <10,000 account right off into three buckets. It would make more sense to just pick one of your options although I'm not sure of the value of bonds in the HSA. As your most tax advantaged account, even more so than Roth, and the most potential for long term growth I'd be looking at stocks a lot earlier. If your concern is short-term possible need then I'd stick with a good paying (>1.5) money-market over bonds. Overall treat it more like a Roth and less like a t-IRA unless you need more bonds in your overall allocation.

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grabiner
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Re: HSA Portfolio Strategy Assessment

Post by grabiner » Fri Feb 14, 2020 8:34 pm

My normal recommendation is to keep one year's deductible (plus anything for outside-deductible expenses such as glasses) in the HSA in cash. Invest the rest as if it were part of your IRA, since it is being saved for expenses in retirement.

Thus it is reasonable to have the entire HSA in one fund if it is a relatively small part of your portfolio; which one fund you use may depend on the options offered by the HSA provider (or on state taxes; use a Treasury or TIPS fund in CA or NJ to avoid state tax).

My own HSA is only 4% of my portfolio, so I have it in one fund (Vanguard Factor Value ETF), and I also hold that fund in my Roth IRA because my target holding in that fund is 20% of my portfolio.
Wiki David Grabiner

printer86
Posts: 141
Joined: Mon Apr 25, 2016 8:45 am

Re: HSA Portfolio Strategy Assessment

Post by printer86 » Fri Feb 14, 2020 10:46 pm

Don’t overthink it. As for us, I pay our medical expenses with cash flow and use my HSA as a triple tax free investment vehicle. I have one total market stock fund and one total market bond fund invested according to my AA.

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