HSA AA/Location - What you do and Why ?

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confusedinvestor
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HSA AA/Location - What you do and Why ?

Post by confusedinvestor » Sat Apr 27, 2019 2:39 pm

Hi Folks,

1. Do you consider your and spouse HSA part of your overall portfolio Asset-Allocation ? If not, why not ?

2. Or, Is your HSA more aggressive vs your retirement portfolio , given one may use HSA for Long Term care which maybe 20+ yrs down the road vs traditional retirement age ?

2. How do you asset/tax 'locate' your HSA funds ? like Roth-IRA ? If not, why not ?

I cant find (yet) our Wiki address my above questions, looking forward to your thoughs and reasons around this.

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jhfenton
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Re: HSA AA/Location - What you do and Why ?

Post by jhfenton » Sat Apr 27, 2019 4:54 pm

1. I treat my HSA (~$50K / ~5% of portfolio) as part of our overall asset allocation.

2. Like both of our Roth IRAs, my HSA is 100% equity. For simplicity, since it's only 5% of our portfolio, I have it invested in one fund. And since it is at Fidelity, and since Fidelity's relatively best/cheapest fund is FPADX/Fidelity Emerging Markets Index Fund at 7.5 bp, I have it 100% invested in FPADX. (By comparison VEMAX/Vanguard EM Index is 14 bp, and VWO/Vanguard EM ETF is 12 bp. So it's 4.5-6.5 bp cheaper.)

If we had unexpected medical expenses we could afford to pay the out-of-pocket limit out of savings, so I don't worry about keeping a cash cushion in the HSA.

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grabiner
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Re: HSA AA/Location - What you do and Why ?

Post by grabiner » Sat Apr 27, 2019 7:05 pm

If you are not paying current medical expenses out of your HSA, you are saving it for expenses in retirement, so it should be invested as if it were part of your IRA.

If you are paying current medical expenses out of your HSA, then it makes sense to treat one year's deductible as part of your emergency fund, and the rest as retirement savings.

It is slightly better to hold bonds in the HSA rather than somewhere else. If you hold stocks in your Roth IRA, your tax doesn't change whether the market rises or falls. If you hold stocks in your traditional IRA, the IRS takes a share of both your gains and losses. If you hold stocks in your HSA, the IRS will not share your losses, but might take a share of your gains if the HSA grows larger than your medical expenses.

If you live in CA or NJ, it is best to hold Treasury bonds (TIPS are particularly good) in the HSA, as these two states tax anything else.

My own HSA holds a single stock ETF, currently VFVA (Vanguard Factor Value ETF). This is not appropriate for a large part of a portfolio, but the HSA is a very small part of my portfolio.
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gjlynch17
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Re: HSA AA/Location - What you do and Why ?

Post by gjlynch17 » Sat Apr 27, 2019 7:50 pm

Similar to the replies above, I pay for medical costs out of pocket and treat my HSA similar to a Roth IRA and I include it as part of my overall asset allocation. I currently have it at Fidelity and am invested similar to my overall allocation (60% equities, 40% bonds) as follows:

40% Fidelity Zero Total Market (FZROX)
20% Fidelity Zero Total International (FZILX)
20% Fidelity U.S. Bond Index (FXNAX)
20% iShares Investment Grade Corporate Bond ETF (USIG)

I am 50 years old and hope to retire in approximately five years and at that time plan to have approximately 15 years of estimated health expenses in fixed income (1 year money market, 2-5 years short-term bond funds/ETF and 5-10 years in intermediate-term bond funds/ETFs and the remainder in equities) which again mirrors my overall investment plan.

harvestbook
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Re: HSA AA/Location - What you do and Why ?

Post by harvestbook » Sat Apr 27, 2019 10:02 pm

We don't consider our HSA a "retirement" account, since it will be used for medical expenses throughout our life, including before retirement. Our invested portion is 100 percent stocks (about 10 percent international at the moment.)

We put $3,500 each year in our credit union HSA earning 2.5 percent that we use for current medical expenses. The taxes we save by not paying out-of-pocket allows us to increase our other tax-deferred investments.
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Hillview
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Re: HSA AA/Location - What you do and Why ?

Post by Hillview » Sun Apr 28, 2019 7:22 am

HSA is 100% equities. I don't use it for annual medical bills, it is planned for use during retirement, potentially years into retirement. It is invested in
SPDR® Portfolio Total Stock Market ETFNYSE Arca:SPTM
at TD Ameritrade with .03 expense ratio

It is a new tool in my portfolio (I have a new job and this is the first time I've had access to an HSA) so it is <1% of total portfolio so I don't think too much about it in terms of AA.

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happymob
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Re: HSA AA/Location - What you do and Why ?

Post by happymob » Sun Apr 28, 2019 7:52 am

Yes, it's part of the overall AA. Yes, it's more aggressive (100% equities) because we expect to actually spend it later in life than some of the traditional 401k money and yes, we treat the money in a very similar manner as we would Roth money.

It's a lot like Roth money, in that you want to capture as much tax-free growth as you can. The biggest difference from a planning perspective is that we definitely would like the HSA to be spent pre-death as inheriting non-spousal HSAs is far worse than inheriting non-spousal Roths. So we will spend the HSA down and we may not spend the Roths down.

Soon2BXProgrammer
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Re: HSA AA/Location - What you do and Why ?

Post by Soon2BXProgrammer » Sun Apr 28, 2019 8:19 am

its part of my portfolio,i don't take withdrawals. i just keep receipts for now.

At the moment it is 100% domestic equities.

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grabiner
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Re: HSA AA/Location - What you do and Why ?

Post by grabiner » Sun Apr 28, 2019 9:14 am

happymob wrote:
Sun Apr 28, 2019 7:52 am
Yes, it's part of the overall AA. Yes, it's more aggressive (100% equities) because we expect to actually spend it later in life than some of the traditional 401k money and yes, we treat the money in a very similar manner as we would Roth money.

It's a lot like Roth money, in that you want to capture as much tax-free growth as you can. The biggest difference from a planning perspective is that we definitely would like the HSA to be spent pre-death as inheriting non-spousal HSAs is far worse than inheriting non-spousal Roths. So we will spend the HSA down and we may not spend the Roths down.
One way to deal with this is to make a charity the beneficiary of your HSA. (If your heir inherits the HSA and donates that money to charity, this won't be quite as good, as the heir will increase his or her adjusted gross income and be subject to AGI-based provisions in the tax code.)
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willthrill81
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Re: HSA AA/Location - What you do and Why ?

Post by willthrill81 » Sun Apr 28, 2019 9:38 am

If we did encounter a significant medical expense, we'd pay for it out of pocket, keep the receipts, and get reimbursed whenever we chose to down the road. As such, we're comfortable keeping our HSA 100% stock (except that HealthEquity requires that the 'first' $2k be kept in cash :annoyed ).
“It's a dangerous business, Frodo, going out your door. You step onto the road, and if you don't keep your feet, there's no knowing where you might be swept off to.” J.R.R. Tolkien,The Lord of the Rings

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happymob
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Re: HSA AA/Location - What you do and Why ?

Post by happymob » Sun Apr 28, 2019 10:12 am

grabiner wrote:
Sun Apr 28, 2019 9:14 am
happymob wrote:
Sun Apr 28, 2019 7:52 am
Yes, it's part of the overall AA. Yes, it's more aggressive (100% equities) because we expect to actually spend it later in life than some of the traditional 401k money and yes, we treat the money in a very similar manner as we would Roth money.

It's a lot like Roth money, in that you want to capture as much tax-free growth as you can. The biggest difference from a planning perspective is that we definitely would like the HSA to be spent pre-death as inheriting non-spousal HSAs is far worse than inheriting non-spousal Roths. So we will spend the HSA down and we may not spend the Roths down.
One way to deal with this is to make a charity the beneficiary of your HSA. (If your heir inherits the HSA and donates that money to charity, this won't be quite as good, as the heir will increase his or her adjusted gross income and be subject to AGI-based provisions in the tax code.)
That makes a lot of sense.

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willthrill81
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Re: HSA AA/Location - What you do and Why ?

Post by willthrill81 » Sun Apr 28, 2019 10:49 am

grabiner wrote:
Sun Apr 28, 2019 9:14 am
happymob wrote:
Sun Apr 28, 2019 7:52 am
Yes, it's part of the overall AA. Yes, it's more aggressive (100% equities) because we expect to actually spend it later in life than some of the traditional 401k money and yes, we treat the money in a very similar manner as we would Roth money.

It's a lot like Roth money, in that you want to capture as much tax-free growth as you can. The biggest difference from a planning perspective is that we definitely would like the HSA to be spent pre-death as inheriting non-spousal HSAs is far worse than inheriting non-spousal Roths. So we will spend the HSA down and we may not spend the Roths down.
One way to deal with this is to make a charity the beneficiary of your HSA. (If your heir inherits the HSA and donates that money to charity, this won't be quite as good, as the heir will increase his or her adjusted gross income and be subject to AGI-based provisions in the tax code.)
I'd never thought of that. It makes perfect sense for those who plan on bequeathing at least that much in assets to a charity anyway, which we plan to do. Good tip!
“It's a dangerous business, Frodo, going out your door. You step onto the road, and if you don't keep your feet, there's no knowing where you might be swept off to.” J.R.R. Tolkien,The Lord of the Rings

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confusedinvestor
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Re: HSA AA/Location - What you do and Why ?

Post by confusedinvestor » Sun Apr 28, 2019 12:37 pm

Hi,
Just making sure I understand, so you are 1. 100% stock in your HSA but a different (not 100% stock) in your overall retirement portfolio ? in other words, you have a different HSA AA vs your retirement AA ?
willthrill81 wrote:
Sun Apr 28, 2019 9:38 am
If we did encounter a significant medical expense, we'd pay for it out of pocket, keep the receipts, and get reimbursed whenever we chose to down the road. As such, we're comfortable keeping our HSA 100% stock (except that HealthEquity requires that the 'first' $2k be kept in cash :annoyed ).

nolesrule
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Re: HSA AA/Location - What you do and Why ?

Post by nolesrule » Sun Apr 28, 2019 1:08 pm

We live in NJ so the investment portion is 100% US Treasury Fund. But since the returns are relatively low, we use the HSA to reimburse medical expenses, as we have 2 kids going through orthodontics currently, and use the HSA for costs above what we can put in the LP FSA for dental/vision. We're also 4 of 4 on the need for visual correction. We aim for 1 year max OOP in the cash portion. The cash portion is excluded from our overall portfolio asset allocation. The reimbursement amounts allow us to put more in taxable (using pre-tax money).

If we ever leave NJ, we will reconsider the plan.

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Re: HSA AA/Location - What you do and Why ?

Post by drk » Sun Apr 28, 2019 1:11 pm

confusedinvestor wrote:
Sun Apr 28, 2019 12:37 pm
Hi,
Just making sure I understand, so you are 1. 100% stock in your HSA but a different (not 100% stock) in your overall retirement portfolio ? in other words, you have a different HSA AA vs your retirement AA ?
It’s common to allocate across your accounts. My Roth IRA holds different assets than my HSA, which holds different assets than my 401k.

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willthrill81
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Re: HSA AA/Location - What you do and Why ?

Post by willthrill81 » Sun Apr 28, 2019 3:02 pm

drk wrote:
Sun Apr 28, 2019 1:11 pm
confusedinvestor wrote:
Sun Apr 28, 2019 12:37 pm
Hi,
Just making sure I understand, so you are 1. 100% stock in your HSA but a different (not 100% stock) in your overall retirement portfolio ? in other words, you have a different HSA AA vs your retirement AA ?
It’s common to allocate across your accounts. My Roth IRA holds different assets than my HSA, which holds different assets than my 401k.
Correct. We keep a modest amount of cash on hand, enough to cover likely medical costs. We can then choose to get reimbursed immediately from our HSA or at a later date.
“It's a dangerous business, Frodo, going out your door. You step onto the road, and if you don't keep your feet, there's no knowing where you might be swept off to.” J.R.R. Tolkien,The Lord of the Rings

Oddball
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Re: HSA AA/Location - What you do and Why ?

Post by Oddball » Mon Apr 29, 2019 9:38 am

Our HSA is part of our AA with it being part of our US stock funds allocation. We do use it to pay for medical stuff under a $100 (medications, copays, etc.) because I don't want to track a large amount of receipts. Medical bills over $100 we pay out of pocket and track those receipts. Seems like a good balance for us.

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confusedinvestor
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Re: HSA AA/Location - What you do and Why ?

Post by confusedinvestor » Tue Apr 30, 2019 10:03 am

Very nice, I'd do this then, use HSA to pay co-pays so I don't have to track those little spending - smart idea and thanks !
Oddball wrote:
Mon Apr 29, 2019 9:38 am
Our HSA is part of our AA with it being part of our US stock funds allocation. We do use it to pay for medical stuff under a $100 (medications, copays, etc.) because I don't want to track a large amount of receipts. Medical bills over $100 we pay out of pocket and track those receipts. Seems like a good balance for us.

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Re: HSA AA/Location - What you do and Why ?

Post by asif408 » Tue Apr 30, 2019 10:19 am

confusedinvestor wrote:
Sat Apr 27, 2019 2:39 pm
Hi Folks,

1. Do you consider your and spouse HSA part of your overall portfolio Asset-Allocation ? If not, why not ?

2. Or, Is your HSA more aggressive vs your retirement portfolio , given one may use HSA for Long Term care which maybe 20+ yrs down the road vs traditional retirement age ?

2. How do you asset/tax 'locate' your HSA funds ? like Roth-IRA ? If not, why not ?

I cant find (yet) our Wiki address my above questions, looking forward to your thoughs and reasons around this.
1. Yes, I do. It's about 15% of our portfolio so not an insignificant amount.

2. It is similarly aggressive, though not completely. I actually use a hybrid approach, investing most of it in stocks and keeping a smaller portion in cash to pay current smaller medical costs. Because I use a hybrid approach and the stock portion could potentially fall when I need some of the money, I own several different asset classes. I do have some funds in taxable accounts to cover expenses for a year or two if absolutely needed, so I could potentially delay withdrawals. If I didn't have that ability I would invest more conservatively or keep it in cash.

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