Fidelity HSA - Which fund to invest in?

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markcoop
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Fidelity HSA - Which fund to invest in?

Post by markcoop »

I have my HSA with Fidelity. Up to now, I have not invested it. I generally withdraw my medical expenses every year. It currently has $15K in it. Hopefully it will continue to grow, but that will depend on future medical expenses. I am 54 year old and my family currently does not have any large medical bills. Given that I am contributing and withdrawing a variable amount from this fund every year, I generally believe I should keep this money on the safe side. I don't include this in my AA. I am not that familiar with Fidelity funds, but was looking at the most conservative Freedom Index fund:

Fidelity Freedom Index Income Fund
E/R: .08%
AA: 20% stock (12% US, 8% Int'l), 80% fixed (55% bonds, 25% short-term debt and net other assets).

If I wanted no stocks at all, they do have the Fidelity U.S. Bond Index Fund with an E/R of .025% percent or Fidelity Inflation-Protected Bond Index Fund with an E/R of .05%

Thoughts?
Mark
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dogagility
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Re: Fidelity HSA - Which fund to invest in?

Post by dogagility »

Looks fine to me. Likely to keep up with inflation but not too volatile. Low expenses.

For these same reasons, another option would be to invest 30% in FZROX (total US stock market) and the remainder in a money market fund like SPRXX.
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Williams57
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Re: Fidelity HSA - Which fund to invest in?

Post by Williams57 »

Whatever asset allocation you decide on (30/70, 50/50?), I think it makes more sense and provides more flexibility to separate out bonds vs stocks, i.e, have two separate funds.

How about VTI & BND.
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grabiner
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Re: Fidelity HSA - Which fund to invest in?

Post by grabiner »

markcoop wrote: Tue Jan 19, 2021 4:49 pm I have my HSA with Fidelity. Up to now, I have not invested it. I generally withdraw my medical expenses every year. It currently has $15K in it. Hopefully it will continue to grow, but that will depend on future medical expenses. I am 54 year old and my family currently does not have any large medical bills. Given that I am contributing and withdrawing a variable amount from this fund every year, I generally believe I should keep this money on the safe side. I don't include this in my AA.
My usual recommendation is to keep the amount you might need in one year (likely one year's deductible, although you could use the out-of-pocket max) outside your asset allocation, and then invest the remainder as if it were part of your IRA, since the HSA and IRA are both being invested for expenses in retirement.

Thus, if you use target-date funds in all your accounts, it makes sense to use one here as well. If you manage your allocation with individual funds, holding just one bond or stock index in the HSA is more reasonable, as it simplifies managing the portfolio.

My own HSA is invested as part of my IRA; both are invested in funds I want to hold but which have relatively high tax costs (REITs and value funds).
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Sage16
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Re: Fidelity HSA - Which fund to invest in?

Post by Sage16 »

what I have been doing with my Fidelity HSA account is to keep a balance in the money market fund based for what I think I may need for medical expenses over the next 3 - 6 months and the rest is invested in the Fidelity 2020 Target date fund. The fund is approx. 50/50 allocation so pretty middle of the road risk level. If I need more cash I transfer from the 2020 fund and the fund takes care of rebalancing for me. Pretty simple and this has worked well for me for a few years now.
Bogle on investing: Diversify, focus on low costs, invest for the long term. Don't speculate and don't be distracted by volatility.
drumboy256
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Re: Fidelity HSA - Which fund to invest in?

Post by drumboy256 »

My HSA is 100% NTSX. Read up on it, great fund for it’s purpose.
Promise is one thing. Fulfilling that promise is quite another. - Sir Alex Ferguson
MishkaWorries
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Re: Fidelity HSA - Which fund to invest in?

Post by MishkaWorries »

grabiner wrote: Tue Jan 19, 2021 9:43 pm
markcoop wrote: Tue Jan 19, 2021 4:49 pm I have my HSA with Fidelity. Up to now, I have not invested it. I generally withdraw my medical expenses every year. It currently has $15K in it. Hopefully it will continue to grow, but that will depend on future medical expenses. I am 54 year old and my family currently does not have any large medical bills. Given that I am contributing and withdrawing a variable amount from this fund every year, I generally believe I should keep this money on the safe side. I don't include this in my AA.
My usual recommendation is to keep the amount you might need in one year (likely one year's deductible, although you could use the out-of-pocket max) outside your asset allocation, and then invest the remainder as if it were part of your IRA, since the HSA and IRA are both being invested for expenses in retirement.

Thus, if you use target-date funds in all your accounts, it makes sense to use one here as well. If you manage your allocation with individual funds, holding just one bond or stock index in the HSA is more reasonable, as it simplifies managing the portfolio.

My own HSA is invested as part of my IRA; both are invested in funds I want to hold but which have relatively high tax costs (REITs and value funds).
This is close to what we do. I keep two years of out of pocket family max in money market. The rest I put in our AA.
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markcoop
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Re: Fidelity HSA - Which fund to invest in?

Post by markcoop »

Appreciate the replies. I may be wrong, but I view my HSA differently than the rest of my portfolio. I think there is an above average chance I deplete my HSA by the time I hit 65. I don't think I will be working till 65 and if the balance does rise over the next couple of years, I expect it to drop in my early 60s when I am not working and paying for healthcare. As such, the time frame for this money is different than my retirement money. This is almost like another goal (medical expenses pre-Medicare). I'm just looking for this money to be there when/if medical expenses arise over the next 10 years.

I generally have managed my money as big goals. My retirement money over various accounts is one goal. College savings has been another goal. Current spending is perhaps a third goal and generally invested in cash. This HSA account is really part of current spending. But since it may grow a bit depending on my health, I thought a very conservative target-date type fund would be appropriate. The only reason this has even come up for me is low medical bills the last couple of years. If I was younger starting an HSA, I would probably view it differently.
Mark
drumboy256
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Re: Fidelity HSA - Which fund to invest in?

Post by drumboy256 »

markcoop wrote: Wed Jan 20, 2021 9:00 am Appreciate the replies. I may be wrong, but I view my HSA differently than the rest of my portfolio. I think there is an above average chance I deplete my HSA by the time I hit 65. I don't think I will be working till 65 and if the balance does rise over the next couple of years, I expect it to drop in my early 60s when I am not working and paying for healthcare. As such, the time frame for this money is different than my retirement money. This is almost like another goal (medical expenses pre-Medicare). I'm just looking for this money to be there when/if medical expenses arise over the next 10 years.

I generally have managed my money as big goals. My retirement money over various accounts is one goal. College savings has been another goal. Current spending is perhaps a third goal and generally invested in cash. This HSA account is really part of current spending. But since it may grow a bit depending on my health, I thought a very conservative target-date type fund would be appropriate. The only reason this has even come up for me is low medical bills the last couple of years. If I was younger starting an HSA, I would probably view it differently.
A very fair viewpoint. People access them in two different ways... use now, use later. If you’re wanting to use now, a balanced fund or target date, as you mentioned makes sense. If you’re in the camp to use it later, equities that favor growth over the years is to your advantage. Either way, do what is best for you.
Promise is one thing. Fulfilling that promise is quite another. - Sir Alex Ferguson
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Re: Fidelity HSA - Which fund to invest in?

Post by Dude2 »

I agree a very conservative target date fund may be appropriate, but I would suggest that is for the money you think you won't need for 5-7 years. Meanwhile, the money you think you will need before that should maybe sit in a combo of money market and a short term nominal or TIPS fund.
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Re: Fidelity HSA - Which fund to invest in?

Post by grabiner »

Dude2 wrote: Wed Jan 20, 2021 9:25 am I agree a very conservative target date fund may be appropriate, but I would suggest that is for the money you think you won't need for 5-7 years. Meanwhile, the money you think you will need before that should maybe sit in a combo of money market and a short term nominal or TIPS fund.
If your medical expenses are usually less than your HSA contribution, then money beyond one year's out-of-pocket is unlikely to be used for as long as you keep the HDHP, so it can be treated as retirement savings and invested as if it were part of your IRA.
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Re: Fidelity HSA - Which fund to invest in?

Post by dcabler »

markcoop wrote: Wed Jan 20, 2021 9:00 am Appreciate the replies. I may be wrong, but I view my HSA differently than the rest of my portfolio. I think there is an above average chance I deplete my HSA by the time I hit 65. I don't think I will be working till 65 and if the balance does rise over the next couple of years, I expect it to drop in my early 60s when I am not working and paying for healthcare. As such, the time frame for this money is different than my retirement money. This is almost like another goal (medical expenses pre-Medicare). I'm just looking for this money to be there when/if medical expenses arise over the next 10 years.

I generally have managed my money as big goals. My retirement money over various accounts is one goal. College savings has been another goal. Current spending is perhaps a third goal and generally invested in cash. This HSA account is really part of current spending. But since it may grow a bit depending on my health, I thought a very conservative target-date type fund would be appropriate. The only reason this has even come up for me is low medical bills the last couple of years. If I was younger starting an HSA, I would probably view it differently.
Similar - I treat it differently as well. Unlike the rest of my portfolio, this money is earmarked for one thing and one thing only: medical expenses post retirement. If I treated it as part of my overall asset allocation, then I could easily end up with it being 100% stock or 100% bond after a rebalance, either of which I consider too risky for me as a source of funds to pay for medical expenses. So it has its own AA.

Even the choice of AA can become a little complex. I don't know what my future medical expenses might be or when they will occur. That might lead to a more conservative AA in an attempt to try and keep ahead of rising medical expenses and not much more. And if I want to be reimbursed for past medical expenses that I already paid for out-of-pocket in order to use the account as sort of a stealth IRA with better tax benefits, then I might choose an AA that looks like the overall AA in the rest of my portfolio. Reality may be somewhere in between. Your mileage may definitely vary on this one.
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Re: Fidelity HSA - Which fund to invest in?

Post by ModifiedDuration »

markcoop wrote: Wed Jan 20, 2021 9:00 am Appreciate the replies. I may be wrong, but I view my HSA differently than the rest of my portfolio. I think there is an above average chance I deplete my HSA by the time I hit 65. I don't think I will be working till 65 and if the balance does rise over the next couple of years, I expect it to drop in my early 60s when I am not working and paying for healthcare. As such, the time frame for this money is different than my retirement money. This is almost like another goal (medical expenses pre-Medicare). I'm just looking for this money to be there when/if medical expenses arise over the next 10 years.

I generally have managed my money as big goals. My retirement money over various accounts is one goal. College savings has been another goal. Current spending is perhaps a third goal and generally invested in cash. This HSA account is really part of current spending. But since it may grow a bit depending on my health, I thought a very conservative target-date type fund would be appropriate. The only reason this has even come up for me is low medical bills the last couple of years. If I was younger starting an HSA, I would probably view it differently.
Just so you are aware, if you retire early you generally cannot use an HSA to pay for healthcare premiums before age 65.

From IRS Publication 969:
Insurance premiums. You can’t treat insurance premiums as qualified medical expenses unless the premiums are for any of the following.
Long-term care insurance.
Health care continuation coverage (such as coverage under COBRA).
Health care coverage while receiving unemployment compensation under federal or state law.
Medicare and other health care coverage if you were 65 or older (other than premiums for a Medicare supplemental policy, such as Medigap).

https://www.irs.gov/publications/p969#e ... 1000204086
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markcoop
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Re: Fidelity HSA - Which fund to invest in?

Post by markcoop »

ModifiedDuration wrote: Thu Jan 21, 2021 7:29 am Just so you are aware, if you retire early you generally cannot use an HSA to pay for healthcare premiums before age 65.

From IRS Publication 969:
Insurance premiums. You can’t treat insurance premiums as qualified medical expenses unless the premiums are for any of the following.
Long-term care insurance.
Health care continuation coverage (such as coverage under COBRA).
Health care coverage while receiving unemployment compensation under federal or state law.
Medicare and other health care coverage if you were 65 or older (other than premiums for a Medicare supplemental policy, such as Medigap).

https://www.irs.gov/publications/p969#e ... 1000204086
Thanks. I was not aware of that. I will have access to healthcare from my current employer, although at a higher cost than I currently am paying as an active employee. I still don't expect my balance in my HSA to grow too large. If it don't need it, that means I, and my family, have been very healthy. If that happens and the balance doesn't grow because invested conservatively, I am ok with that. If it doesn't grow because I use it, I will be happy that it was invested conservatively.
Mark
ModifiedDuration
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Re: Fidelity HSA - Which fund to invest in?

Post by ModifiedDuration »

markcoop wrote: Thu Jan 21, 2021 9:27 am
ModifiedDuration wrote: Thu Jan 21, 2021 7:29 am Just so you are aware, if you retire early you generally cannot use an HSA to pay for healthcare premiums before age 65.

From IRS Publication 969:
Insurance premiums. You can’t treat insurance premiums as qualified medical expenses unless the premiums are for any of the following.
Long-term care insurance.
Health care continuation coverage (such as coverage under COBRA).
Health care coverage while receiving unemployment compensation under federal or state law.
Medicare and other health care coverage if you were 65 or older (other than premiums for a Medicare supplemental policy, such as Medigap).

https://www.irs.gov/publications/p969#e ... 1000204086
Thanks. I was not aware of that. I will have access to healthcare from my current employer, although at a higher cost than I currently am paying as an active employee. I still don't expect my balance in my HSA to grow too large. If it don't need it, that means I, and my family, have been very healthy. If that happens and the balance doesn't grow because invested conservatively, I am ok with that. If it doesn't grow because I use it, I will be happy that it was invested conservatively.
I’ll just mention that since HSA contributions are made before tax and then grow tax-free (if used for healthcare expenses), if they can afford it many individuals contribute significantly to their HSA accounts, fund current out-of-pocket healthcare costs with current income, and then invest the HSA accounts rather aggressively, with the thought that the HSA account could be used to help fund healthcare expenses during retirement.
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Re: Fidelity HSA - Which fund to invest in?

Post by BroIceCream »

ModifiedDuration wrote: Thu Jan 21, 2021 12:47 pm I’ll just mention that since HSA contributions are made before tax and then grow tax-free (if used for healthcare expenses), if they can afford it many individuals contribute significantly to their HSA accounts, fund current out-of-pocket healthcare costs with current income, and then invest the HSA accounts rather aggressively, with the thought that the HSA account could be used to help fund healthcare expenses during retirement.
This is significant. Even though I live in an "HSA-taxable" state (CA), I still invest in higher growth TSM ETF rather than tax-free treasury bond. I find the growth opportunity more compelling than minimizing taxes. But since my TSM etf minimizes taxable events, and I just buy and hold, the taxes are miniscule.
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Re: Fidelity HSA - Which fund to invest in?

Post by grabiner »

BroIceCream wrote: Thu Jan 21, 2021 2:43 pm
ModifiedDuration wrote: Thu Jan 21, 2021 12:47 pm I’ll just mention that since HSA contributions are made before tax and then grow tax-free (if used for healthcare expenses), if they can afford it many individuals contribute significantly to their HSA accounts, fund current out-of-pocket healthcare costs with current income, and then invest the HSA accounts rather aggressively, with the thought that the HSA account could be used to help fund healthcare expenses during retirement.
This is significant. Even though I live in an "HSA-taxable" state (CA), I still invest in higher growth TSM ETF rather than tax-free treasury bond. I find the growth opportunity more compelling than minimizing taxes. But since my TSM etf minimizes taxable events, and I just buy and hold, the taxes are miniscule.
This makes sense if a Treasury fund doesn't fit your needs. If you have Treasury bonds in your IRA (possibly as part of something like Total Bond Market), you can have the same portfolio with the Treasury bonds in your HSA and the stocks in your IRA. But if you don't hold any bonds, or if you have some other reason to hold fixed income in another account (TSP G fund, TIAA Traditional Annuity, high tax bracket and hold in-state munis in a taxable account), then a tax-efficient stock index doesn't cost much in state tax. And a US index is better than an international index, since neither CA nor NJ allows a foreign tax credit.
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markcoop
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Re: Fidelity HSA - Which fund to invest in?

Post by markcoop »

ModifiedDuration wrote: Thu Jan 21, 2021 12:47 pm
markcoop wrote: Thu Jan 21, 2021 9:27 am
ModifiedDuration wrote: Thu Jan 21, 2021 7:29 am Just so you are aware, if you retire early you generally cannot use an HSA to pay for healthcare premiums before age 65.

From IRS Publication 969:
Insurance premiums. You can’t treat insurance premiums as qualified medical expenses unless the premiums are for any of the following.
Long-term care insurance.
Health care continuation coverage (such as coverage under COBRA).
Health care coverage while receiving unemployment compensation under federal or state law.
Medicare and other health care coverage if you were 65 or older (other than premiums for a Medicare supplemental policy, such as Medigap).

https://www.irs.gov/publications/p969#e ... 1000204086
Thanks. I was not aware of that. I will have access to healthcare from my current employer, although at a higher cost than I currently am paying as an active employee. I still don't expect my balance in my HSA to grow too large. If it don't need it, that means I, and my family, have been very healthy. If that happens and the balance doesn't grow because invested conservatively, I am ok with that. If it doesn't grow because I use it, I will be happy that it was invested conservatively.
I’ll just mention that since HSA contributions are made before tax and then grow tax-free (if used for healthcare expenses), if they can afford it many individuals contribute significantly to their HSA accounts, fund current out-of-pocket healthcare costs with current income, and then invest the HSA accounts rather aggressively, with the thought that the HSA account could be used to help fund healthcare expenses during retirement.
Here's my take on this. I actually posted something like this a couple of years ago.

There really are two totally separate decisions using HSAs:
1) Should I contribute to an HSA?
2) Should I pay my medical bill out of pocket?

For (1), I think it should be almost at the top of the pecking order of contributions, only after 401K type contributions that are matched by the employer.

For (2), there are a number of factors to consider. Of course, keeping money in a tax-advantaged account is always better. So, if you can max out all your accounts and keep it in the HSA, that is best. If you aren't maxing out all tax-advantaged accounts, then you have a choice to make - keep in HSA or withdraw from HSA and then contribute to IRA or the like. There really are pluses and minuses to both. Keeping it in the HSA gives you access to that money in the future before retirement (However I am not that far away at this point). Fees and investment options in the various tax-advantaged accounts are also a consideration.

I personally have a great 401K with a match and we have Roth IRAs that are all maxed out. That's about all I can afford, and project I need, to save. So I actually reimburse myself from the HSA and leave in there whatever is left. Note that I have access to me wife's 401K, but choose not to consider that because the fees are high. I also have access to backdoor Roth 401K using after-tax contributions that I don't do.
Mark
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