HSA’s: What level of risk do you prefer?

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bluerafters
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HSA’s: What level of risk do you prefer?

Post by bluerafters » Mon Oct 09, 2017 5:49 pm

http://www.investopedia.com/articles/pe ... rement.asp

Open insurance enrollment for my employer is coming in a few weeks. I’m strongly looking to move from the currently enrolled HRA employer offered plan to the employer offered HSA. I’m 40, single, and without, knock on wood, any serious health issues to this point. There is a employer contribution, I believe it’s $350, off the top of my head for 2017, and I’ll have to wait to see the 2018 amount.

How conservative or aggressive are you with the investment side of your HSA? My current plan is to use the first two paychecks in January 2018 to max the HSA.

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Re: HSA’s: What level of risk do you prefer?

Post by aristotelian » Mon Oct 09, 2017 5:58 pm

I have a nice 3% CD option through my employer HSA at my local credit union. I am currently using that for the whole allocation. Will probably get more aggressive when balance hits 10k or so, but I like having some portion in fixed income in case of a major expense.

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Meaty
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Re: HSA’s: What level of risk do you prefer?

Post by Meaty » Mon Oct 09, 2017 6:01 pm

bluerafters wrote:
Mon Oct 09, 2017 5:49 pm
http://www.investopedia.com/articles/pe ... rement.asp

Open insurance enrollment for my employer is coming in a few weeks. I’m strongly looking to move from the currently enrolled HRA employer offered plan to the employer offered HSA. I’m 40, single, and without, knock on wood, any serious health issues to this point. There is a employer contribution, I believe it’s $350, off the top of my head for 2017, and I’ll have to wait to see the 2018 amount.

How conservative or aggressive are you with the investment side of your HSA? My current plan is to use the first two paychecks in January 2018 to max the HSA.
My HSA is 100% total stock market. I don’t, however, use it to pay medical expenses. I use it as a tax free way to save for medical expenses in retirement (20+ years from now) so I’m looking for maximizing growth.
"Discipline equals Freedom" - Jocko Willink

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FIREchief
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Re: HSA’s: What level of risk do you prefer?

Post by FIREchief » Mon Oct 09, 2017 6:08 pm

During accumulation years, 100% equities. During retirement years, 100% fixed.
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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Re: HSA’s: What level of risk do you prefer?

Post by rocket354 » Mon Oct 09, 2017 6:17 pm

Like others, I am saving for the long haul. I don't intend to touch my HSA until retirement 20+ years from now. Mine requires $500 in cash which earns me .05%. The rest is in a Vanguard TSM index fund.

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Re: HSA’s: What level of risk do you prefer?

Post by jhfenton » Mon Oct 09, 2017 6:39 pm

I'm treating my HA like a Roth IRA, so it's 100% equities. Up until now I had to keep $2,000 in cash, but I'm in the process of rolling it over to reduce fees and get first-dollar investing. The only cash I'll have going forward will be what builds up in my employer-sponsored HSA in-between trustee-to-trustee transfers.

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Re: HSA’s: What level of risk do you prefer?

Post by TravelforFun » Mon Oct 09, 2017 7:17 pm

Meaty wrote:
Mon Oct 09, 2017 6:01 pm
bluerafters wrote:
Mon Oct 09, 2017 5:49 pm
http://www.investopedia.com/articles/pe ... rement.asp

Open insurance enrollment for my employer is coming in a few weeks. I’m strongly looking to move from the currently enrolled HRA employer offered plan to the employer offered HSA. I’m 40, single, and without, knock on wood, any serious health issues to this point. There is a employer contribution, I believe it’s $350, off the top of my head for 2017, and I’ll have to wait to see the 2018 amount.

How conservative or aggressive are you with the investment side of your HSA? My current plan is to use the first two paychecks in January 2018 to max the HSA.
My HSA is 100% total stock market. I don’t, however, use it to pay medical expenses. I use it as a tax free way to save for medical expenses in retirement (20+ years from now) so I’m looking for maximizing growth.
This is what I'm doing too. 100% stock.

bluerafters
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Re: HSA’s: What level of risk do you prefer?

Post by bluerafters » Mon Oct 09, 2017 7:44 pm

I'm surprised to see everyone in stocks. I thought the trend would be far more conservative investments for a medical vehicle.

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camillus
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Re: HSA’s: What level of risk do you prefer?

Post by camillus » Mon Oct 09, 2017 8:01 pm

Keep in mind that money is fungible across investment accounts. Much of the thinking in the thread above represents illusory "mental accounting."

Say your HSA holdings are 100% stock.
You incur a health related expense of $1000.
Sell $1000 of stock in your HSA to pay for your expense.
Immediately trade $1000 of bond for stock in your Roth IRA, 401k, etc to maintain your total asset allocation.

The only rule that should dictate which account holds which funds is presumed growth & tax advantage in the future. Your Roth IRA should hold the things that will likely grow the most and have the most risk. The HSA is on that side of the spectrum, but not as far as the Roth, since you may pay taxes on that money in the event you make an unqualified withdrawal after the penalty goes away in retirement, effectually making it a traditional IRA. Speaking of, your 401k/traditional IRA is where you should hold bonds, since you are most likely to be paying taxes on that money and these will be subject to RMDs.

In my thinking though, it would be good to have a few thousand dollars in a safe investment in a HSA before going 100% equities there. It's like an extension of your emergency fund, which purpose is not to maximize return, but to maximize "sleep at night" factor and convenience in a crisis.
Last edited by camillus on Mon Oct 09, 2017 8:10 pm, edited 2 times in total.

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Re: HSA’s: What level of risk do you prefer?

Post by TravelforFun » Mon Oct 09, 2017 8:02 pm

bluerafters wrote:
Mon Oct 09, 2017 7:44 pm
I'm surprised to see everyone in stocks. I thought the trend would be far more conservative investments for a medical vehicle.
Just like investing for retirement. If you don't need the money the next 10-15 years, put it on equity.

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Re: HSA’s: What level of risk do you prefer?

Post by bluerafters » Mon Oct 09, 2017 8:03 pm

camillus wrote:
Mon Oct 09, 2017 8:01 pm
Keep in mind that money is fungible across investment accounts. Much of the thinking in the thread above represents illusory "mental accounting."

Say your HSA holdings are 100% stock.
You incur a health related expense of $1000.
Sell $1000 of stock in your HSA to pay for your expense.
Immediately trade $1000 of bond for stock in your Roth IRA, 401k, etc to maintain your total asset allocation.

The only rule that should dictate which account holds which funds is presumed growth & tax advantage in the future. Your Roth IRA should hold the things that will likely grow the most and have the most risk. The HSA is on that side of the spectrum, but not as far as the Roth. Your 401k/traditional IRA is where you should hold bonds, since you are most likely to be paying taxes on that money.

In my thinking though, it would be good to have a few thousand dollars in a safe investment in a HSA before going 100% equities there. It's like an extension of your emergency fund, which purpose is not to maximize return, but to maximize "sleep at night" factor and convenience in a crisis.
Hmmm. Interesting approach.

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camillus
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Re: HSA’s: What level of risk do you prefer?

Post by camillus » Mon Oct 09, 2017 8:05 pm

bluerafters wrote:
Mon Oct 09, 2017 8:03 pm
Interesting approach.
I have this bad habit of editing immediately after I publish. I kept writing a bit after you quoted.

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Meaty
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Re: HSA’s: What level of risk do you prefer?

Post by Meaty » Mon Oct 09, 2017 8:36 pm

camillus wrote:
Mon Oct 09, 2017 8:01 pm
Keep in mind that money is fungible across investment accounts. Much of the thinking in the thread above represents illusory "mental accounting."

Say your HSA holdings are 100% stock.
You incur a health related expense of $1000.
Sell $1000 of stock in your HSA to pay for your expense.
Immediately trade $1000 of bond for stock in your Roth IRA, 401k, etc to maintain your total asset allocation.

The only rule that should dictate which account holds which funds is presumed growth & tax advantage in the future. Your Roth IRA should hold the things that will likely grow the most and have the most risk. The HSA is on that side of the spectrum, but not as far as the Roth, since you may pay taxes on that money in the event you make an unqualified withdrawal after the penalty goes away in retirement, effectually making it a traditional IRA. Speaking of, your 401k/traditional IRA is where you should hold bonds, since you are most likely to be paying taxes on that money and these will be subject to RMDs.

In my thinking though, it would be good to have a few thousand dollars in a safe investment in a HSA before going 100% equities there. It's like an extension of your emergency fund, which purpose is not to maximize return, but to maximize "sleep at night" factor and convenience in a crisis.
I don’t think this holds true with HSAs because you are penalized if the funds are not used for medical expenses
"Discipline equals Freedom" - Jocko Willink

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Re: HSA’s: What level of risk do you prefer?

Post by grabiner » Mon Oct 09, 2017 8:36 pm

My advice: If you are using your HSA for current medical expenses, keep one year's deductible in cash as part of your emergency fund. Anything beyond that is being invested for retirement expenses, so it should be treated as part of your IRA. If you are paying current expenses out of pocket and using the HSA to increase your tax-dferred savings, invest the whole HSA as part of your IRA.

If all else is equal, it is slightly better to hold bonds in your HSA because this decreases the chance that your HSA will become too large for your medical expenses and will become taxable. (And if your state taxes HSAs, you should hold Treasuries or TIPS, which are exempt from state tax. This is not a risk decision, but a cost decision, since you will pay tax on corporate bonds, or on stocks both on the dividends and on capital gains when you sell.)
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Re: HSA’s: What level of risk do you prefer?

Post by J295 » Mon Oct 09, 2017 8:37 pm

Our HSA is not used for medical now, but we keep receipts and will take out later (say 10-15 years from now) -- so it can grow tax free and then be withdrawn tax free.

We invest (Wellington) and consider it part of our overall allocation.

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Re: HSA’s: What level of risk do you prefer?

Post by deltaneutral83 » Mon Oct 09, 2017 8:41 pm

bluerafters wrote:
Mon Oct 09, 2017 7:44 pm
I'm surprised to see everyone in stocks. I thought the trend would be far more conservative investments for a medical vehicle.
Plenty of people pay out of pocket and utilize the tax advantaged space the HSA yields as part of their overall AA. A dollar here is a dollar there when it comes to expenses.

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Re: HSA’s: What level of risk do you prefer?

Post by Dottie57 » Mon Oct 09, 2017 9:16 pm

deltaneutral83 wrote:
Mon Oct 09, 2017 8:41 pm
bluerafters wrote:
Mon Oct 09, 2017 7:44 pm
I'm surprised to see everyone in stocks. I thought the trend would be far more conservative investments for a medical vehicle.
Plenty of people pay out of pocket and utilize the tax advantaged space the HSA yields as part of their overall AA. A dollar here is a dollar there when it comes to expenses.
I treat it as an investment account, but keep a full years max oop in cash. I have a nice stash in Wellington now.

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Re: HSA’s: What level of risk do you prefer?

Post by Mr.Wu » Mon Oct 09, 2017 9:29 pm

I put it 100% in total stock for its moderate tax efficiency, and I don't need it for a few years.

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Re: HSA’s: What level of risk do you prefer?

Post by Tamarind » Mon Oct 09, 2017 10:10 pm

I have to keep $2k in cash, so I do. That would cover my deductible if I had a major medical issue. The rest is invested in REITs. Not because of risk but because it happens to be the perfect size and contribution rate to hold my entire REIT allocation and because it's where I have access to the cheapest Vanguard REIT fund at the moment.

Generally speaking I would put anything appropriate for a 401k or tIRA into an HSA.

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Re: HSA’s: What level of risk do you prefer?

Post by camillus » Mon Oct 09, 2017 10:14 pm

grabiner wrote:
Mon Oct 09, 2017 8:36 pm
If all else is equal, it is slightly better to hold bonds in your HSA because this decreases the chance that your HSA will become too large for your medical expenses and will become taxable.
Correct me if I am wrong, but I the event that HSA money grows too large, and the person is old enough (65) to avoid penalty for unqualified withdrawal, then I believe the HSA is taxed exactly the same as a traditional IRA, and is without RMD.

Therefore if you are making traditional, deferred contributions to an IRA or 401k, bonds would take priority there over an HSA. Your last HSA dollar distributed might be treated as no worse than tax deferred but has a chance to be tax free.

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Re: HSA’s: What level of risk do you prefer?

Post by FIREchief » Tue Oct 10, 2017 12:17 am

camillus wrote:
Mon Oct 09, 2017 10:14 pm
Therefore if you are making traditional, deferred contributions to an IRA or 401k, bonds would take priority there over an HSA. Your last HSA dollar distributed might be treated as no worse than tax deferred but has a chance to be tax free.
Your "HSA last dollar distributed" will be treated worse than an IRA if it is distributed to your heirs. tIRA dollars can be stretched. HSA dollars are immediately taxable.
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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Re: HSA’s: What level of risk do you prefer?

Post by mhc » Tue Oct 10, 2017 8:09 am

I treat my HSA as part of my retirement portfolio. I currently am 100% TSM in my HSA.

If my HSA grows larger than all my qualified medical expenses in retirement, then I'll be rolling in the money because people say medical expenses is one of the larger pieces of the budget in retirement.

I probably started a HSA about 7-8 years ago. I probably have less than 10 years to go until retirement. I doubt it will ever be above 10% of my retirement portfolio. Medical expenses could easily be greater than 10% of my retirement expenses.

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Re: HSA’s: What level of risk do you prefer?

Post by Psyayeayeduck » Tue Oct 10, 2017 8:26 am

I was lucky enough to put in 100% in VFIAX in my HSA. Not planning to change it any time soon.

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Re: HSA’s: What level of risk do you prefer?

Post by Artsdoctor » Tue Oct 10, 2017 8:26 am

100% in Total Stock Market during accumulation years and then more conservative when getting close to spending it.

I can't imagine having our HSAs be "too big" but if they ballooned incredibly, you can use them like IRAs and even then if you failed to exhaust them, leave them to charities to maintain the tax-advantaged status.

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Re: HSA’s: What level of risk do you prefer?

Post by informal guide » Tue Oct 10, 2017 8:30 am

FIREchief wrote:
Tue Oct 10, 2017 12:17 am
camillus wrote:
Mon Oct 09, 2017 10:14 pm
Therefore if you are making traditional, deferred contributions to an IRA or 401k, bonds would take priority there over an HSA. Your last HSA dollar distributed might be treated as no worse than tax deferred but has a chance to be tax free.
Your "HSA last dollar distributed" will be treated worse than an IRA if it is distributed to your heirs. tIRA dollars can be stretched. HSA dollars are immediately taxable.
The exception for taxation of an HSA is if it passes to your spouse - -in that case one's spouse, I believe, assumes it and treats it as her own. My spouse has a life expectancy 12+ years longer than me, so the odds are that she will take it over and spend it down on Medicare or other covered expenses before her demise. Just in case, this year I am starting my file of uncovered expenses.

My HSA is not a significant part of my portfolio; I simply keep it in an approximate 65/35 stock/bond mix - -my target asset allocation --for simplicity sake. I am using corporate investment grade ETFs, rather than the more conservative total bond market portfolio.

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Re: HSA’s: What level of risk do you prefer?

Post by alfaspider » Tue Oct 10, 2017 8:37 am

bluerafters wrote:
Mon Oct 09, 2017 7:44 pm
I'm surprised to see everyone in stocks. I thought the trend would be far more conservative investments for a medical vehicle.
A lot of people aren't using it as a true medical vehicle. It can operate like additional tax advantaged retirement space. Personally, I use mine as a hybrid- I do use it to pay medical expenses currently but over-contribute. Ideally, one would max out an HSA for your entire working career and never withdraw a penny but save every medical bill. Then, once you hit retirement, you can start withdrawing your cumulative medical expenses tax-free. But for me, the record keeping burden of waiting to withdraw is just too onerous compared to the benefit.

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Re: HSA’s: What level of risk do you prefer?

Post by deltaneutral83 » Tue Oct 10, 2017 8:40 am

FIREchief wrote:
Tue Oct 10, 2017 12:17 am

Your "HSA last dollar distributed" will be treated worse than an IRA if it is distributed to your heirs. tIRA dollars can be stretched. HSA dollars are immediately taxable.
I pray that I have this "problem." If you and your spouse "cross the finish line" without having medical expenses become an issue (by way of having left over HSA accounts)and thus passing it to your heirs, you have done very well. I don't think I'm worried my heirs getting taxed after I'm gone so much as me piling up money in the best way I know how (my overall AA) for decades to combat the health care situation while I'm hopefully still kicking it.

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Re: HSA’s: What level of risk do you prefer?

Post by MI_bogle » Tue Oct 10, 2017 9:22 am

grabiner wrote:
Mon Oct 09, 2017 8:36 pm
My advice: If you are using your HSA for current medical expenses, keep one year's deductible in cash as part of your emergency fund. Anything beyond that is being invested for retirement expenses, so it should be treated as part of your IRA. If you are paying current expenses out of pocket and using the HSA to increase your tax-dferred savings, invest the whole HSA as part of your IRA.
Yep, this is what I do. 1 year OOP max in the cash savings account. Everything else invested 100% equities.

Once a year, transfer anything over and above the OOP max in the savings account to the investing side of things

I had initially planned on investing all of it for the long run, but have since changed my mind and decided against the hassle of saving receipts, especially since my medical costs have been minimal so far.

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Re: HSA’s: What level of risk do you prefer?

Post by nolesrule » Tue Oct 10, 2017 9:26 am

We're in New Jersey so I'm following grabiner's advice and keeping the invested portions in a U.S. Treasury Fund, especially since our HSA requires a cash threshold declaration and sweeping of funds back and forth, which would otherwise annoyingly be state taxable events.

We also keep 1 year in-network max OOP in the cash portion as the sweep threshold.

The cash portion is outside the portfolio and the invested portion is part of our overall asset allocation. We do use the HSA for current reimburseable expenses, since I am not interested in 25 years of record-keeping, but we're funding it faster than we are using it. A dollar now is worth more than a dollar in 20+ years anyway, and there is also the inheritance issue.

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Re: HSA’s: What level of risk do you prefer?

Post by dcabler » Tue Oct 10, 2017 11:09 am

bluerafters wrote:
Mon Oct 09, 2017 5:49 pm
http://www.investopedia.com/articles/pe ... rement.asp

Open insurance enrollment for my employer is coming in a few weeks. I’m strongly looking to move from the currently enrolled HRA employer offered plan to the employer offered HSA. I’m 40, single, and without, knock on wood, any serious health issues to this point. There is a employer contribution, I believe it’s $350, off the top of my head for 2017, and I’ll have to wait to see the 2018 amount.

How conservative or aggressive are you with the investment side of your HSA? My current plan is to use the first two paychecks in January 2018 to max the HSA.
I do the same thing for my 401K and HSA - max out at the beginning of the year. This is mainly due to the fact that my industry tends to have layoffs later in the year and I like to "layoff-proof" my deferred accounts, having been layed off 3 times in a 33 year career.

My previous company had a company provided HRA which was set up to bridge the deductible but could also be used to reimburse prescription copays - we never came close to using up the HRA in any year.

Current company has HSA with similar deductible as previous company. But no company contributions. At the first of each year, I make sure that I have the annual deductible in cash, preferably with the first deposits. The remainder is invested in accordance with my overall AA across all accounts. If in any year I meet my deductible (which would be paid from the cash in HSA), I will pay out of pocket for any additional medical expenses.

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Re: HSA’s: What level of risk do you prefer?

Post by bluerafters » Tue Oct 10, 2017 12:51 pm

I was just informed that annual enrollment starts Oct 14th. It will be interesting to see the changes for the 2018 year.

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Re: HSA’s: What level of risk do you prefer?

Post by Hukedonfonix4me » Tue Oct 10, 2017 1:10 pm

$2,000 cash which is the threshold to invest in commission free ETF's. Remainder goes 100% to VTI.
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Re: HSA’s: What level of risk do you prefer?

Post by theplayer11 » Tue Oct 10, 2017 1:58 pm

80/20-vanguard life strategy growth.

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Re: HSA’s: What level of risk do you prefer?

Post by Artsdoctor » Tue Oct 10, 2017 2:19 pm

dcabler wrote:
Tue Oct 10, 2017 11:09 am
bluerafters wrote:
Mon Oct 09, 2017 5:49 pm
http://www.investopedia.com/articles/pe ... rement.asp

Open insurance enrollment for my employer is coming in a few weeks. I’m strongly looking to move from the currently enrolled HRA employer offered plan to the employer offered HSA. I’m 40, single, and without, knock on wood, any serious health issues to this point. There is a employer contribution, I believe it’s $350, off the top of my head for 2017, and I’ll have to wait to see the 2018 amount.

How conservative or aggressive are you with the investment side of your HSA? My current plan is to use the first two paychecks in January 2018 to max the HSA.
I do the same thing for my 401K and HSA - max out at the beginning of the year. This is mainly due to the fact that my industry tends to have layoffs later in the year and I like to "layoff-proof" my deferred accounts, having been layed off 3 times in a 33 year career.

My previous company had a company provided HRA which was set up to bridge the deductible but could also be used to reimburse prescription copays - we never came close to using up the HRA in any year.

Current company has HSA with similar deductible as previous company. But no company contributions. At the first of each year, I make sure that I have the annual deductible in cash, preferably with the first deposits. The remainder is invested in accordance with my overall AA across all accounts. If in any year I meet my deductible (which would be paid from the cash in HSA), I will pay out of pocket for any additional medical expenses.
I also used to contribute the entire year's maximum to my HSA in January. However, the health insurance industry has become so volatile that I could no longer be reasonably certain that I'd have the HSA for the whole year. Consequently, I now contribute monthly.

Since you're looking at it with a potential lay-off in mind, just remember that if you're making your whole year's contribution in January, you're going to be expected to maintain that HDHP for the whole year. If that does not happen, you're going to have to withdraw money from your HSA in the amount of the excess contribution as well as any earnings that that excess has generated. The earnings will be taxed. If you don't remove the excess contribution, you'll pay a 6% penalty.

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Re: HSA’s: What level of risk do you prefer?

Post by dcabler » Tue Oct 10, 2017 2:51 pm

Artsdoctor wrote:
Tue Oct 10, 2017 2:19 pm
dcabler wrote:
Tue Oct 10, 2017 11:09 am
bluerafters wrote:
Mon Oct 09, 2017 5:49 pm
http://www.investopedia.com/articles/pe ... rement.asp

Open insurance enrollment for my employer is coming in a few weeks. I’m strongly looking to move from the currently enrolled HRA employer offered plan to the employer offered HSA. I’m 40, single, and without, knock on wood, any serious health issues to this point. There is a employer contribution, I believe it’s $350, off the top of my head for 2017, and I’ll have to wait to see the 2018 amount.

How conservative or aggressive are you with the investment side of your HSA? My current plan is to use the first two paychecks in January 2018 to max the HSA.
I do the same thing for my 401K and HSA - max out at the beginning of the year. This is mainly due to the fact that my industry tends to have layoffs later in the year and I like to "layoff-proof" my deferred accounts, having been layed off 3 times in a 33 year career.

My previous company had a company provided HRA which was set up to bridge the deductible but could also be used to reimburse prescription copays - we never came close to using up the HRA in any year.

Current company has HSA with similar deductible as previous company. But no company contributions. At the first of each year, I make sure that I have the annual deductible in cash, preferably with the first deposits. The remainder is invested in accordance with my overall AA across all accounts. If in any year I meet my deductible (which would be paid from the cash in HSA), I will pay out of pocket for any additional medical expenses.
I also used to contribute the entire year's maximum to my HSA in January. However, the health insurance industry has become so volatile that I could no longer be reasonably certain that I'd have the HSA for the whole year. Consequently, I now contribute monthly.

Since you're looking at it with a potential lay-off in mind, just remember that if you're making your whole year's contribution in January, you're going to be expected to maintain that HDHP for the whole year. If that does not happen, you're going to have to withdraw money from your HSA in the amount of the excess contribution as well as any earnings that that excess has generated. The earnings will be taxed. If you don't remove the excess contribution, you'll pay a 6% penalty.
Correct - but my industry tends to do layoffs in December.

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Re: HSA’s: What level of risk do you prefer?

Post by grabiner » Tue Oct 10, 2017 6:22 pm

camillus wrote:
Mon Oct 09, 2017 10:14 pm
grabiner wrote:
Mon Oct 09, 2017 8:36 pm
If all else is equal, it is slightly better to hold bonds in your HSA because this decreases the chance that your HSA will become too large for your medical expenses and will become taxable.
Correct me if I am wrong, but I the event that HSA money grows too large, and the person is old enough (65) to avoid penalty for unqualified withdrawal, then I believe the HSA is taxed exactly the same as a traditional IRA, and is without RMD.
This is correct, but it is still undesirable
Therefore if you are making traditional, deferred contributions to an IRA or 401k, bonds would take priority there over an HSA. Your last HSA dollar distributed might be treated as no worse than tax deferred but has a chance to be tax free.
The difference is that you are converting tax-free dollars to tax-deferred dollars with no tax benefit. If you are in a 25% tax bracket with $3000 to invest, you can put $4000 in a traditional IRA, or $3000 in a Roth IRA; these are equivalent investments, as you will get $6000 from either one if the investment doubles in value, and $1500 if it halves in value. There is no particular advantage for having stocks in one rather than the other, once you adjust for the fact that the IRS owns 25% of the traditional IRA so that your $4000 investment is really $3000 tax-free.

In an HSA, it doesn't work this way. It costs you $2250 to put $3000 in an HSA. If that HSA is used for medical expenses, it is as good as a Roth IRA in the example above, as you get $6000 if the investment doubles, and $1500 if it halves. But if you only have $4000 in medical expenses, you get $5500 instead of $6000 if the investment doubles. This is worth than either $3000 in a Roth IRA or $4000 in a traditional IRA; you didn't get an extra tax deduction when some of your investment became taxable.
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Re: HSA’s: What level of risk do you prefer?

Post by Artsdoctor » Tue Oct 10, 2017 7:32 pm

^ I think that this a terrific analysis, David, and it makes sense with your numbers used. However, I do bring some baggage to the table since I'm reminded everyday how expensive medical care can be. I am aware that I have a heavily skewed population since I'm used to seeing very complex and often very ill patients. Between reimbursing for past expenses, paying all Medicare premiums, co-pays, medications, transportation, hearing aids, dental expenses, and various other healthcare-related expenses, I just can't imagine having too much in an HSA although if one is super-healthy, that might well be the case. If I'm going to be THAT healthy, then I'll grin and bear the IRS payments.

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Re: HSA’s: What level of risk do you prefer?

Post by FIREchief » Tue Oct 10, 2017 7:45 pm

Artsdoctor wrote:
Tue Oct 10, 2017 7:32 pm
Between reimbursing for past expenses, paying all Medicare premiums, co-pays, medications, transportation, hearing aids, dental expenses, and various other healthcare-related expenses, I just can't imagine having too much in an HSA although if one is super-healthy, that might well be the case. If I'm going to be THAT healthy, then I'll grin and bear the IRS payments.
There's also the chance that you (and your spouse if married) might die tomorrow. If that happens, heirs pay much less taxes on a stretched inherited tIRA than they will pay on an inherited HSA (which really isn't an HSA anymore when one's heart makes that last beat). :(

So if somebody asks, "if I have to choose between putting a dollar into an HSA or a dollar into a deductible tIRA; which is better?" The answer is, it all depends on when you (and your spouse) die and/or who takes that dollar out (and when and for what purpose).

Finally, a tIRA dollar can be Roth converted but an HSA dollar can not.

All that said, it's hard to go wrong maxing out an HSA, but when deciding where to place faster growing and/or more volatile assets, and when to reimburse past medical expenses, some thought may be required.... 8-)
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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Re: HSA’s: What level of risk do you prefer?

Post by rocket354 » Tue Oct 10, 2017 8:40 pm

grabiner wrote:
Tue Oct 10, 2017 6:22 pm

The difference is that you are converting tax-free dollars to tax-deferred dollars with no tax benefit. If you are in a 25% tax bracket with $3000 to invest, you can put $4000 in a traditional IRA, or $3000 in a Roth IRA; these are equivalent investments, as you will get $6000 from either one if the investment doubles in value, and $1500 if it halves in value. There is no particular advantage for having stocks in one rather than the other, once you adjust for the fact that the IRS owns 25% of the traditional IRA so that your $4000 investment is really $3000 tax-free.

In an HSA, it doesn't work this way. It costs you $2250 to put $3000 in an HSA. If that HSA is used for medical expenses, it is as good as a Roth IRA in the example above, as you get $6000 if the investment doubles, and $1500 if it halves. But if you only have $4000 in medical expenses, you get $5500 instead of $6000 if the investment doubles. This is worth than either $3000 in a Roth IRA or $4000 in a traditional IRA; you didn't get an extra tax deduction when some of your investment became taxable.
I'm curious about this analysis. It only cost $2250 to put the $3000 in the HSA, so shouldn't we compare that to the equivalent cost investment for the IRAs? In the 25% bracket, at the equivalent cost you will put in $2250 to the Roth (and $3000 to the traditional, but you've already demonstrated their equivalence). Therefore, if the Roth doubles in value you are at $4500. If the HSA doubles, you are at $6000, where if it's taxed at full you are back to $4500, but if you use some of that for medical expenses you are above that, like in your example. Therefore, the HSA seems like a much better deal, as the worst off you are is just the same as the Roth. This analysis of course assumes equal tax rates coming and going, and no fees on either account.

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Re: HSA’s: What level of risk do you prefer?

Post by Artsdoctor » Wed Oct 11, 2017 9:21 am

FIREchief wrote:
Tue Oct 10, 2017 7:45 pm
Artsdoctor wrote:
Tue Oct 10, 2017 7:32 pm
Between reimbursing for past expenses, paying all Medicare premiums, co-pays, medications, transportation, hearing aids, dental expenses, and various other healthcare-related expenses, I just can't imagine having too much in an HSA although if one is super-healthy, that might well be the case. If I'm going to be THAT healthy, then I'll grin and bear the IRS payments.
There's also the chance that you (and your spouse if married) might die tomorrow. If that happens, heirs pay much less taxes on a stretched inherited tIRA than they will pay on an inherited HSA (which really isn't an HSA anymore when one's heart makes that last beat). :(

So if somebody asks, "if I have to choose between putting a dollar into an HSA or a dollar into a deductible tIRA; which is better?" The answer is, it all depends on when you (and your spouse) die and/or who takes that dollar out (and when and for what purpose).

Finally, a tIRA dollar can be Roth converted but an HSA dollar can not.

All that said, it's hard to go wrong maxing out an HSA, but when deciding where to place faster growing and/or more volatile assets, and when to reimburse past medical expenses, some thought may be required.... 8-)
I think that if you had to choose BETWEEN an IRA and an HSA, you'd go with the IRA (401[k]). But you'd still have to factor in the possibility of employer contributions. If your employer would make the maximum contribution to your HSA but nothing to your IRA, you'd have to re-calculate the benefits. You'd also factor in the FICA and Medicare savings, etc. All of that said, you'd almost always come out ahead if you contributed to your IRA first, then followed by your HSA. Everyone's situation would be unique.

The death issue is a significant obstacle with HSAs. Aside from your spouse, you could really pass on hefty tax bill to your heirs. We've worked around issue by naming charities for the beneficiary if we both pass away before spending it.
Last edited by Artsdoctor on Wed Oct 11, 2017 6:52 pm, edited 1 time in total.

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Re: HSA’s: What level of risk do you prefer?

Post by Pranav » Wed Oct 11, 2017 12:49 pm

Currently, we have $1000 in cash as required by custodian and the rest in Total Bond Market. We pay medical expenses from HSA as they occur. We expect to have a big medical expense within next couple of years. We use HSA balance as part of our overall asset allocation.
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Re: HSA’s: What level of risk do you prefer?

Post by Thrifty Femme » Wed Oct 11, 2017 4:51 pm

I put bonds in my HSA because I'm also using it as an emergency fund.

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Re: HSA’s: What level of risk do you prefer?

Post by grabiner » Wed Oct 11, 2017 4:52 pm

rocket354 wrote:
Tue Oct 10, 2017 8:40 pm
grabiner wrote:
Tue Oct 10, 2017 6:22 pm

The difference is that you are converting tax-free dollars to tax-deferred dollars with no tax benefit. If you are in a 25% tax bracket with $3000 to invest, you can put $4000 in a traditional IRA, or $3000 in a Roth IRA; these are equivalent investments, as you will get $6000 from either one if the investment doubles in value, and $1500 if it halves in value. There is no particular advantage for having stocks in one rather than the other, once you adjust for the fact that the IRS owns 25% of the traditional IRA so that your $4000 investment is really $3000 tax-free.

In an HSA, it doesn't work this way. It costs you $2250 to put $3000 in an HSA. If that HSA is used for medical expenses, it is as good as a Roth IRA in the example above, as you get $6000 if the investment doubles, and $1500 if it halves. But if you only have $4000 in medical expenses, you get $5500 instead of $6000 if the investment doubles. This is worth than either $3000 in a Roth IRA or $4000 in a traditional IRA; you didn't get an extra tax deduction when some of your investment became taxable.
I'm curious about this analysis. It only cost $2250 to put the $3000 in the HSA, so shouldn't we compare that to the equivalent cost investment for the IRAs? In the 25% bracket, at the equivalent cost you will put in $2250 to the Roth (and $3000 to the traditional, but you've already demonstrated their equivalence). Therefore, if the Roth doubles in value you are at $4500. If the HSA doubles, you are at $6000, where if it's taxed at full you are back to $4500, but if you use some of that for medical expenses you are above that, like in your example. Therefore, the HSA seems like a much better deal, as the worst off you are is just the same as the Roth. This analysis of course assumes equal tax rates coming and going, and no fees on either account.
This is a correct conclusion. If you have a choice of where to put the money, an HSA is a better investment than anything other than a contribution to a 401(k) which gets an employer match.

The purpose of my analysis was to discuss what to do with the money once it is in the HSA. If the HSA is used for medical expenses, it is equivalent to a Roth IRA; you already got the tax benefit which is the reason you contributed to the HSA. If part of the HSA is used for non-medical expenses, that part is equivalent to a traditional IRA. You don't want to replace Roth IRA dollars with an equal amount of traditional IRA dollars, so you want to avoid the risk of having too large an HSA.
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Re: HSA’s: What level of risk do you prefer?

Post by 523HRR » Thu Oct 12, 2017 2:08 pm

Meaty wrote:
Mon Oct 09, 2017 6:01 pm
My HSA is 100% total stock market. I don’t, however, use it to pay medical expenses. I use it as a tax free way to save for medical expenses in retirement (20+ years from now) so I’m looking for maximizing growth.
+1
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Re: HSA’s: What level of risk do you prefer?

Post by DrGoogle2017 » Thu Oct 12, 2017 7:21 pm

It’s a very small amount and treat it as gambling money. The money has been sitting in my DCU account earning less than 1%. This year I’m making up for lost time. Up 30% so far investing in individual stocks. I originally was thinking of using it for future dental implants. If I keep making this kind of ROI, it might cover nursing home. Good thing I cancelled my LTC insurance.

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Re: HSA’s: What level of risk do you prefer?

Post by gunn_show » Sun Oct 15, 2017 1:31 am

Meaty wrote:
Mon Oct 09, 2017 6:01 pm
bluerafters wrote:
Mon Oct 09, 2017 5:49 pm
http://www.investopedia.com/articles/pe ... rement.asp

Open insurance enrollment for my employer is coming in a few weeks. I’m strongly looking to move from the currently enrolled HRA employer offered plan to the employer offered HSA. I’m 40, single, and without, knock on wood, any serious health issues to this point. There is a employer contribution, I believe it’s $350, off the top of my head for 2017, and I’ll have to wait to see the 2018 amount.

How conservative or aggressive are you with the investment side of your HSA? My current plan is to use the first two paychecks in January 2018 to max the HSA.
My HSA is 100% total stock market. I don’t, however, use it to pay medical expenses. I use it as a tax free way to save for medical expenses in retirement (20+ years from now) so I’m looking for maximizing growth.
+1....100% vtsax
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Re: HSA’s: What level of risk do you prefer?

Post by gunn_show » Sun Oct 15, 2017 1:35 am

alfaspider wrote:
Tue Oct 10, 2017 8:37 am
But for me, the record keeping burden of waiting to withdraw is just too onerous compared to the benefit.
snap a photo... upload to dropbox or google drive etc... store in cloud forever till needed...
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Re: HSA’s: What level of risk do you prefer?

Post by LadyGeek » Sun Oct 15, 2017 9:02 am

New member OregonKate has a question which I've split into a new thread. See: [HSA vs. PPO (Preferred Provider Organization) - which to select?]
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Re: HSA’s: What level of risk do you prefer?

Post by StevieG72 » Sun Oct 15, 2017 9:36 am

I look at all of my investments as a whole.

Bonds are in my HSA for tax efficiency.
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Re: HSA’s: What level of risk do you prefer?

Post by music_man » Sun Oct 15, 2017 9:37 am

I have it 100% invested in VTI - Vanguard Total STock Market ETF and look at it in the context of my entire asset allocation of all my other accounts combined. I am not currently using it for medical expenses but for long term tax advantaged retirement savings while paying any current medical expenses out of pocket. I do save the receipts electronically, so that I can use them to withdraw from the HSA in the distant future.

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