Strategy to Compensate for HSA With Poor Investment Options

[jimmyrules712]

I recently saw a few posts here that made me think that I should make maxing out my HSA contributions a higher priority then they currently are since HSA's have the benefits of IRAs plus the added benefit of being able to use the funds at any time for medical expenses.

My employer has set me up with an HSA through Chase and every year my employer deposits a sum of money into that account. It does not look like I have the option of changing that to a different bank.

The problem is the investment options with Chase suck. There is one S&P500 index fund with a .45% exp ratio and a 5.25% load and all the rest of the options are managed funds with higher expenses than that.

I also read that you can only transfer HSA balances once per 12 months per HSA account.

Would the following strategy work?

Open an HSA with HSABank (allows investing funds through a TD Ameritrade brokerage (with Vanguard ETFs)). Set up automatic monthly paycheck deductions into my Chase HSA account. Once a year transfer the Chase balance to HSABank and invest it there.

Would that even be worth the trouble or would I be better off just using the chase S&P500 fund?

Any thoughts or concerns?

[grabiner]

Would the following strategy work?

Open an HSA with HSABank (allows investing funds through a TD Ameritrade brokerage (with Vanguard ETFs)). Set up automatic monthly paycheck deductions into my Chase HSA account. Once a year transfer the Chase balance to HSABank and invest it there.

That is probably a good strategy. Given the brokerage fees ($10 for trading a Vanguard ETF at TD Ameritrade), you wouldn't want to make too many purchases anyway, so just leaving the money at Chase for a year rather than in the TD Ameritrade money market account doesn't have a significant cost.

[centrifuge41]

That is probably a good strategy. Given the brokerage fees ($10 for trading a Vanguard ETF at TD Ameritrade), you wouldn't want to make too many purchases anyway, so just leaving the money at Chase for a year rather than in the TD Ameritrade money market account doesn't have a significant cost.

A lot of Vanguard ETFs are free at TD Ameritrade. You just have to activate the commission-free ETF. List.

Anyway, yes, it probably makes sense to transfer out of Chase HSA once a year, unless it turns out that the S&P 500 fund's expense ratio is waived.

[Nutella Junkie]

It is my understanding that the funds in the Chase HSA do not have any loads. Check their website:

https://www.chase.com/index.jsp?pg_name ... -investing

All funds available at net asset value with no front or back-end load or investment minimums

[joppy]

I also read that you can only transfer HSA balances once per 12 months per HSA account.

Where did you read this? Is this a Chase restriction or an IRS restriction? I haven't heard of this restriction before.

That said, transferring once a year is probably good enough, and it is annoying to do paperwork repeatedly.

- Joppy

[FedGuy]

That said, transferring once a year is probably good enough, and it is annoying to do paperwork repeatedly.

Agreed. It took me almost three months to get my HSA transferred from Chase to Adirondack (Adirondack said they'd handle everything with Chase, Chase claimed they never heard from Adirondack, so I filled out paperwork with Chase, and they took their time processing it), so I think once per year is about my limit for that.

[lambdapro]

I chose HLEIX and ADFIX for my Chase HSA. Do you have access to those?

[tarnation]

I also read that you can only transfer HSA balances once per 12 months per HSA account.

Where did you read this? Is this a Chase restriction or an IRS restriction? I haven't heard of this restriction before.

That said, transferring once a year is probably good enough, and it is annoying to do paperwork repeatedly.

- Joppy

Actually, the IRS restriction is one rollover per 12 months just like an IRA. A rollover is where you get cash in hand and then deposit into another account. A custodian to custodian "transfer" can be done as many times as you like, it will just cost money.
http://www.irs.gov/pub/irs-pdf/p969.pdf

[jimmyrules712]

It is my understanding that the funds in the Chase HSA do not have any loads. Check their website:

https://www.chase.com/index.jsp?pg_name ... -investing

All funds available at net asset value with no front or back-end load or investment minimums

Here's all the funds I can choose from. Feel free to look them up but all the ones I've checked have a load.


JPMorgan Prime Money Market Fund – Morgan Shares……
VMVXX

American Century Inflation-Adjusted Bond – Investor Class……
ACITX

JPMorgan Core Bond Fund – A Shares……
PGBOX

Russell LIfePoints Conservative Strategy Fund – R3 Shares……
RCLDX

Russell LIfePoints Moderate Strategy Fund – R3 Shares……
RMLDX

Russell LIfePoints Growth Strategy Fund – R3 Shares……
RALDX

JPMorgan Equity Index Fund – A Shares……
OGEAX

JPMorgan Small Cap Equity Fund – A Shares……
VSEAX

BlackRock Capital Appreciation Fund – A Shares……
MDFGX

Eaton Vance Large-Cap Value Fund – A Shares……
EHSTX

Thornburg International Value Fund – A Shares……
TGVAX

[Ted Valentine]

There has to be a checking account option. Most HSA offer either a cash option or an investment option. Choose the cash option and roll it out once a year.

[lambdapro]

I would use ACITX for the bond fund.
Are you married? If so, you could start up an HSA for your wife with HSABank or HSAAdministrators and have it with the equity portion of your HSA. Then only use ACITX for the bond portion.
David

[tarnation]

I would just use the "Cash account" curretnly at 0.40%. Then just do a rollover once a year to HSABank.

[tarnation]

I would use ACITX for the bond fund.
Are you married? If so, you could start up an HSA for your wife with HSABank or HSAAdministrators and have it with the equity portion of your HSA. Then only use ACITX for the bond portion.
David

I thought the goal was for the OP to use payroll deductions where they could save on taxes. Opening a spousal account does not get that benefit.

[lambdapro]

That is a great point. The social security savings is quite a boost immediately.
If both are over 55, could still benefit from spousal account.

[bombcar]

I have my HSA with Alliant Credit Union. At 2% APY I just consider it part of my bond allocation and there are no fees of any kind, which at the amounts I have is very significant.

[sunspotzsz]

I have the same dilemma with my Chase HSA.

In terms of the loads, although all the funds have them in their public profiles, but Chase HSA does waive all the loads.

The only viable choice I see is the SP500 index fund with .45% expense, which offers little for diversification. I am wonderful if one should diversify within one type of accounts or over all the accounts. If it is the later, I think I can live with the index fund, which is what I am doing right now.

[grabiner]

The only viable choice I see is the SP500 index fund with .45% expense, which offers little for diversification. I am wonderful if one should diversify within one type of accounts or over all the accounts. If it is the later, I think I can live with the index fund, which is what I am doing right now.

Diversifying need only be done over all your accounts. If you need to spend $5000 from your HSA but your asset allocation says that $5000 should be spent from a bond fund, you can sell $5000 of the S&P index fund in your HSA and then move $5000 from a bond fund to a stock fund in your Roth IRA.

The other concern is the tax treatment of your investments. If your state taxes HSAs, you want the HSA to hold investments which are either not subject to state taxes (Treasury bonds) or are tax efficient (index funds). And if you have a taxable account, your HSA is tax-sheltered room, so you do not want to put something tax-efficient there if it would force you to put something tax-inefficient in a taxable account.

[Nutella Junkie]

I have the same dilemma with my Chase HSA.

In terms of the loads, although all the funds have them in their public profiles, but Chase HSA does waive all the loads.

The only viable choice I see is the SP500 index fund with .45% expense, which offers little for diversification. I am wonderful if one should diversify within one type of accounts or over all the accounts. If it is the later, I think I can live with the index fund, which is what I am doing right now.

The investment options aren't too bad (although they could be way better). What gets me is the low interest rate on the cash account and the $2.50 monthly fee for the investment account. Fees for HSA investment accounts seem to be the norm though.

[sunspotzsz]

Thanks!

The only viable choice I see is the SP500 index fund with .45% expense, which offers little for diversification. I am wonderful if one should diversify within one type of accounts or over all the accounts. If it is the later, I think I can live with the index fund, which is what I am doing right now.

Diversifying need only be done over all your accounts. If you need to spend $5000 from your HSA but your asset allocation says that $5000 should be spent from a bond fund, you can sell $5000 of the S&P index fund in your HSA and then move $5000 from a bond fund to a stock fund in your Roth IRA.

The other concern is the tax treatment of your investments. If your state taxes HSAs, you want the HSA to hold investments which are either not subject to state taxes (Treasury bonds) or are tax efficient (index funds). And if you have a taxable account, your HSA is tax-sheltered room, so you do not want to put something tax-efficient there if it would force you to put something tax-inefficient in a taxable account.

[sunspotzsz]

I don't really care about the interest rate on the cash, since I only keep $100, the minimum I believe, in cash account. I am young and healthy and need very little medical care other than contacts lens and solution, and I use limited purpose FSA to cover them. If I do have to pay for medical care beyond FSA, I'd rather pay out of pocket than using HSA.

My employer covers the monthly fee.

All I care is good low cost investment options, which they don't provide.

I have the same dilemma with my Chase HSA.

In terms of the loads, although all the funds have them in their public profiles, but Chase HSA does waive all the loads.

The only viable choice I see is the SP500 index fund with .45% expense, which offers little for diversification. I am wonderful if one should diversify within one type of accounts or over all the accounts. If it is the later, I think I can live with the index fund, which is what I am doing right now.

The investment options aren't too bad (although they could be way better). What gets me is the low interest rate on the cash account and the $2.50 monthly fee for the investment account. Fees for HSA investment accounts seem to be the norm though.

[Nutella Junkie]

I don't really care about the interest rate on the cash, since I only keep $100, the minimum I believe, in cash account. I am young and healthy and need very little medical care other than contacts lens and solution, and I use limited purpose FSA to cover them. If I do have to pay for medical care beyond FSA, I'd rather pay out of pocket than using HSA.

My employer covers the monthly fee.

All I care is good low cost investment options, which they don't provide.

I agree on all counts. But don't hold your breath waiting for a large bank to offer "good low cost investment options."

I would really like it if Chase made some real index funds available in their HSA, for those of us who want to use it as a long-term investment vehicle.

[grabiner]

I agree on all counts. But don't hold your breath waiting for a large bank to offer "good low cost investment options."

I would really like it if Chase made some real index funds available in their HSA, for those of us who want to use it as a long-term investment vehicle.

You don't need to stay with Chase; you can move your HSA to a different custodian just as you do with an IRA. My own HSA is with HSA Bank; the bank account isn't particularly good, but almost all my money is in a brokerage account at TD Ameritrade, where I can buy some ETFs for free and others for $10.

[wlpotts]

I agree on all counts. But don't hold your breath waiting for a large bank to offer "good low cost investment options."

You don't need to stay with Chase; you can move your HSA to a different custodian just as you do with an IRA....

I'm with Grabiner, It's your money in the HSA. You can have multiple accounts and move money to any institution you select. I chose HSAadministrators since they have Vanguard mutual fund investment options with no surcharges. (READ: No-load and low costs)

[jimmyrules712]

I agree on all counts. But don't hold your breath waiting for a large bank to offer "good low cost investment options."

You don't need to stay with Chase; you can move your HSA to a different custodian just as you do with an IRA....

I'm with Grabiner, It's your money in the HSA. You can have multiple accounts and move money to any institution you select. I chose HSAadministrators since they have Vanguard mutual fund investment options with no surcharges. (READ: No-load and low costs)

Not sure if this applies to everyone but I have to at least keep one HSA with chase since that is where my employer deposits an annual sum to offset my high deductible health plan. Also I can have funds deducted from my paycheck automatically to go into that account. That's why I'm considering the strategy mentioned in the original post to have 2 accounts and every year move the balance from chase to the other.

[Nutella Junkie]

I agree on all counts. But don't hold your breath waiting for a large bank to offer "good low cost investment options."

You don't need to stay with Chase; you can move your HSA to a different custodian just as you do with an IRA....

I'm with Grabiner, It's your money in the HSA. You can have multiple accounts and move money to any institution you select. I chose HSAadministrators since they have Vanguard mutual fund investment options with no surcharges. (READ: No-load and low costs)

Not sure if this applies to everyone but I have to at least keep one HSA with chase since that is where my employer deposits an annual sum to offset my high deductible health plan. Also I can have funds deducted from my paycheck automatically to go into that account. That's why I'm considering the strategy mentioned in the original post to have 2 accounts and every year move the balance from chase to the other.

I've looked at other administrators, but all the fees make me feel like it's not worthwhile to switch from Chase. The $30 annual fee for the investment account at Chase is less than the "setup" and "account maintenance" fees at HSA Administrators, for example.

So with Chase, I get more expensive funds, with the cheapest being a S&P500 index fund (charging a 0.45% ER) and JP Morgan's money market fund. Big deal. I can try and switch money around elsewhere right now to keep my allocation as I see fit while minimizing fees. At least that's how I feel about it right now.

As for HSA's that give a high interest rate on the savings account, those don't seem to be worth chasing because the rate drops almost as soon as you get there.

[tarnation]

I agree on all counts. But don't hold your breath waiting for a large bank to offer "good low cost investment options."

You don't need to stay with Chase; you can move your HSA to a different custodian just as you do with an IRA....

I'm with Grabiner, It's your money in the HSA. You can have multiple accounts and move money to any institution you select. I chose HSAadministrators since they have Vanguard mutual fund investment options with no surcharges. (READ: No-load and low costs)

Not sure if this applies to everyone but I have to at least keep one HSA with chase since that is where my employer deposits an annual sum to offset my high deductible health plan. Also I can have funds deducted from my paycheck automatically to go into that account. That's why I'm considering the strategy mentioned in the original post to have 2 accounts and every year move the balance from chase to the other.

I've looked at other administrators, but all the fees make me feel like it's not worthwhile to switch from Chase. The $30 annual fee for the investment account at Chase is less than the "setup" and "account maintenance" fees at HSA Administrators, for example.

So with Chase, I get more expensive funds, with the cheapest being a S&P500 index fund (charging a 0.45% ER) and JP Morgan's money market fund. Big deal. I can try and switch money around elsewhere right now to keep my allocation as I see fit while minimizing fees. At least that's how I feel about it right now.

As for HSA's that give a high interest rate on the savings account, those don't seem to be worth chasing because the rate drops almost as soon as you get there.

With HSABank you can get a no annual fee TDAM brokerage and sign up to trade about 100 ETF's for free including many from VG. To my knowledge it is the cheapest thing available.