Funding an HSA (Fidelity)

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Amphian
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Joined: Tue Jan 30, 2018 9:37 pm

Funding an HSA (Fidelity)

Post by Amphian » Fri Mar 09, 2018 4:16 pm

I’m starting a new job, which happens to offer an HSA, and I’m baffled as to how to fund it while being sure to not over fund it. For starting a new job (no previous HSA), you can choose to only fund the months you have the HDHP (Prorate Rule), or you can fund the entire year and hope you don’t get laid off in the following year or switch jobs (Last Month Rule). In either case, since the contribution limits can change AFTER the year starts (I believe this just happened a few days ago for one limit.), it sounds like there is no safe way to fund the plan. You can’t calculate a total amount and divide it out by paycheck so you are always in sync with the current month. You can’t pay it all up front for the year, which would be my preference. An additional wrinkle is that the employer will contribute some money, I think as a lump sum at some point, which is awesome, but means I need to take it into account for my calculations.

It sounds like there is a penalty to fix overpayments that I would rather not pay, and there often monthly fees and trade fees for the account and few good investment choices. This new plan is with Fidelity, but I have no idea if this is like 401Ks, where there is no standard “Fidelity 401K” and it depends heavily on what your company sets up, or if all Fidelity HSAs are pretty much the same. If the latter, I would be grateful to get any details on costs, etc. from someone who has one. In general, what kind of fees and costs are there, other than the expense ratio for whatever the investment is?

This just feels so… not well thought out. (Then again, it’s healthcare related in the US, so I guess that’s normal.) I’m used to things like 401K where it’s a payroll deduction based on earned income and you can never screw up and be over unless you have multiple jobs per year that fund different 401Ks. For the HSA, I can’t guarantee I won’t be laid off in the next 20 months (I don't think many people other than government and academic employees can guarantee that.), so I’m stuck funding it all in the last month of the year or, well, I have no idea how you fund a partial year if you get laid off in that year before you contribute.

Am I missing something?

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tfb
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Re: Funding an HSA (Fidelity)

Post by tfb » Fri Mar 09, 2018 6:10 pm

Amphian wrote:
Fri Mar 09, 2018 4:16 pm
In either case, since the contribution limits can change AFTER the year starts (I believe this just happened a few days ago for one limit.), it sounds like there is no safe way to fund the plan. You can’t calculate a total amount and divide it out by paycheck so you are always in sync with the current month.

... ...

Am I missing something?
In the history of nearly 15 years, this is the first time the limit changed after the year started and it only changed by $50. If you would rather not deal with excess contribution, don't use the last-month rule. You know the limit by now. You know how to prorate it. Subtract the employer's contribution from the limit and divide by the number of paychecks. Done.

Fidelity's HSA is the best. You have a brokerage account with everything available at Fidelity and the same commission schedule as a retail brokerage account. Hang on to it even after you leave this job. The fee is $12/quarter. Your employer may pay part of it or 100% of it. The fee is waived if you have enough other money with Fidelity. Even if you have to pay $48/year it's worth it.
Harry Sit, taking a break from the forums.

Spirit Rider
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Re: Funding an HSA (Fidelity)

Post by Spirit Rider » Fri Mar 09, 2018 6:22 pm

Amphian wrote:
Fri Mar 09, 2018 4:16 pm
In either case, since the contribution limits can change AFTER the year starts (I believe this just happened a few days ago for one limit.), it sounds like there is no safe way to fund the plan.

Am I missing something?
Don't overreact to a small change caused by the first major tax reform in 32 years. Yes, this changed the way inflation adjustments were made to a number of things in the tax code. The vast majority of people with HSAs, make contributions by payroll deduction. For them all this will require is a small change in in their deduction.

In your situation you should be able to determine a safe contributions path:
  1. Calculate your pro-rated calculation limit.
  2. Find out your employer's contribution and subtract it from the above result.
  3. Divide the above result by the number of pay periods left in the year. Round down to the nearest dollar amount. This is your per pay period contribution.
  4. Next April make a determination of the likelihood of retaining an HSA for all of 2019. At that time if you feel confident enough you will have an HDHP for the next eight (8) months, maximize your HSA using the last month rule.
You can not beat the tax man, so search for a little stress relief , E.g. meditation, the gym. listen to a little music and drink a glass of wine or do what I do when confronted by the frustrations of the tax code; cite the Serenity Prayer. Although, the last two may be in conflict.

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FIREchief
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Re: Funding an HSA (Fidelity)

Post by FIREchief » Fri Mar 09, 2018 7:45 pm

Spirt Rider pretty much covered it, so I'll just refer you back to his post. Only one thing to add.....

Be VERY thankful that you have the opportunity to establish an HSA with Fidelity. IMHO, they are head and shoulders above the rest.

Note on Fido HSAs: if any of you have one, and your spouse turns 55; they will accept an application for your spouse to establish an HSA since he/she is covered by your HDHP. It may take an explanatory letter, but it is possible for a spouse to also set up a Fido HSA in order to make the extra $1000 annual contribution. Otherwise, the general public has no access that I am aware of. Maybe this will change in the future.
I am not a lawyer, accountant or financial advisor. Any advice or suggestions that I may provide shall be considered for entertainment purposes only.

Amphian
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Re: Funding an HSA (Fidelity)

Post by Amphian » Fri Mar 09, 2018 9:48 pm

Thanks for the advice. This is the first year I have been eligible for an HSA, so I hadn't been tracking their limits. I was surprised to see a change to any IRS limit after the start of the year, but assumed HSAs were just different from 401Ks, etc. due to that change. Since this wasn't normal and was prompted by the tax code changes, does this mean I could be facing the same kind of thing with my 401K limit this year, where they announce a new limit in a couple months?

At least it sounds like Fidelity is a good provider. Hopefully, my employer will pay the fee for now. Given what I can invest this year, $48 is a 1.5% fee on top the the expense ratios of the investments, but obviously that becomes a smaller percentage as I contribute over years, since it's a fixed fee. My other accounts are not at Fidelity, although my new 401K will be, so I'm not likely to get the $250K to shut off the fees anytime soon.

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FIREchief
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Re: Funding an HSA (Fidelity)

Post by FIREchief » Fri Mar 09, 2018 10:08 pm

Amphian wrote:
Fri Mar 09, 2018 9:48 pm
Given what I can invest this year, $48 is a 1.5% fee on top the the expense ratios of the investments, but obviously that becomes a smaller percentage as I contribute over years, since it's a fixed fee.
I would have GLADLY paid $48 per year to switch from Optum to Fido years ago. I don't think Optum is necessarily any worse than most, just that Fido is the only one I've ever seen that is just a simple brokerage account without all the silly rules.
I am not a lawyer, accountant or financial advisor. Any advice or suggestions that I may provide shall be considered for entertainment purposes only.

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