Optimize HSA value - payroll to HSA Bank or on own to Lively

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Optimize HSA value - payroll to HSA Bank or on own to Lively

Post by Tamarind » Tue Jan 14, 2020 1:29 pm

Could use a little help with the optimization math here. Thanks in advance!

I became eligible to contribute to an HSA again on Jan 1. My employer uses HSA Bank, covers all fees, and provides a $10/month match provided I also contribute at least $10. HSA Bank forces me to keep the first $1000 in a cash account earning 0.05%. Amounts above that can be invested with TDA or Devenir. Regardless of which investment option I choose it appears I can get a decent total stock or total bond option for 0.04-0.05% ER.

I also have my old rollover HSA, from a prior period of eligibility. I use Lively, which charges no fees and permits me to invest every dollar through TDA, same as above.

I hate leaving money uninvested at HSA Bank, since I know that's where they are actually making their profit. But I do want every bit of free money from my employer.

If I contribute directly to the Lively HSA (except for $120 to capture the match), I'll pay FICA taxes I wouldn't otherwise pay. 7.65%, yes? That's ~$270. I'm between the first and second SS bend points.

So I think I should be contributing via payroll deduction as the lost interest is more than made up for by saved FICA, and the reduction in SS earnings is not enough to really impact my eventual benefits. But then I need to include the fact that with bonus I should slightly exceed the SS cap, maybe by as little as $3-4k. So every dollar exempt from FICA to the HSA is an extra dollar of other salary/income that is taxed instead....

....Now I'm starting to confuse myself.

Any advice on the right way to go? And are there any clever tricks wrt HSA Bank like doing a trustee-to-trustee transfer out to the custodian of my choice? Their website is not especially informative.

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Re: Optimize HSA value - payroll to HSA Bank or on own to Lively

Post by Makefile » Tue Jan 14, 2020 2:19 pm

Trustee-to-trustee transfers usually cost money and usually involve mailing a paper check, so if you were thinking to do one after every payroll deposit, that probably isn't a great solution.

I don't understand your reasoning on avoiding FICA on HSA money causing other money to be taxed instead, or how that would be a bad thing. It could mean you're actually saving 1.45% instead of 7.65% tax if you were going to hit the Social Security cap regardless, but that's still 1.45% saved.

Payroll deduction also decreases your Medicare wages if you're ever in the position to hit the 200,000 threshold for additional Medicare tax (one can dream right?) which putting money into an HSA the "normal" way does not do.

For what it's worth, I'm in a similar situation. I just drain the company HSA annually via an indirect rollover (remember only one per 12 months) and put the money into my Lively HSA. I suppose that's sub-optimal since I'm actually averaging more than $1000 sitting in the company HSA. I thought the investment minimum was more than that.

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