HSA: invest in bonds or stock?

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idc
Posts: 71
Joined: Fri Nov 27, 2020 12:50 am

HSA: invest in bonds or stock?

Post by idc »

Face a small conundrum. I have an adequately sized portfolio of 401k, and non qualified investments, as well as a relatively modest (proportionally) amount in Roth IRA and HSA.

I re-balance as needed per my AA plan, and when I do that, I generally have to move to bonds from stock. When doing so, I am increasing the amount of bonds on my 401k and/or increasing stocks on my non qualified with new cash.

So far so good. The only question I have though is what to do with HSA? Does it make any material difference if HSA investments are stock or bond?
I am 54 if that makes a difference, and have no plans/needs to use HSA funds for the foreseeable future.

Thanks
vas
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Re: HSA: invest in bonds or stock?

Post by vas »

Might be worth reviewing: https://www.bogleheads.org/wiki/Tax-eff ... _placement

If all your binds are in the 401K then that's reasonable.

Stocks and/or bonds are fine in the HSA as its tax protected.
"The wages of sin are death, but after they take the taxes out, it's more like a tired feeling, really." - Paula Poundstone
TropikThunder
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Re: HSA: invest in bonds or stock?

Post by TropikThunder »

idc wrote: Thu Jan 13, 2022 6:08 pm Does it make any material difference if HSA investments are stock or bond?
Two schools of thought:
1. Hold bonds in your HSA in case you need to use them for medical expenses near-term (don't want to have to sell stocks after a loss)
2. Hold stocks in your HSA if you are fairly sure you won't need to use them near-term (stocks have higher long-term growth expectation)
idc wrote: Thu Jan 13, 2022 6:08 pm I am 54 if that makes a difference, and have no plans/needs to use HSA funds for the foreseeable future.
Looks like you answered your own question. :P
Topic Author
idc
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Re: HSA: invest in bonds or stock?

Post by idc »

TropikThunder wrote: Thu Jan 13, 2022 6:29 pm [...]
Looks like you answered your own question. :P
thank you!
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Lee_WSP
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Re: HSA: invest in bonds or stock?

Post by Lee_WSP »

I treat it as a Roth for future and deferred reimbursement for current health Care expenses.
MadDwag
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Re: HSA: invest in bonds or stock?

Post by MadDwag »

VTSAX and chill!
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MrMars
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Re: HSA: invest in bonds or stock?

Post by MrMars »

MadDwag wrote: Thu Jan 13, 2022 10:03 pmVTSAX and chill!
this is my HSA philosophy, 100% in VTSAX. I view my HSA as an investment vehicle.

It is possible that for psychological reasons I would revisit that philosophy as the balance grows and retirement nears. But in general I try to view all of my accounts as a singular portfolio. My 401K is 100% in TDF so my entire bond allocation is located there. I just remind myself of that when I begin to think maybe there should be some bond allocation in the HSA.

My untaxed HSA contributions, grow unencumbered by a bond allocation, to be withdrawn without being taxed for medical expenses in retirement. Yes, please.
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winterfan
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Re: HSA: invest in bonds or stock?

Post by winterfan »

We've invested 100% in stock. It did well last year. However, we have orthodontia to pay for next month and are facing the conundrum of whether or not to use the money from our HSA or from our taxable account. We were hoping to let the HSA grow for our old age.
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arcticpineapplecorp.
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Re: HSA: invest in bonds or stock?

Post by arcticpineapplecorp. »

one other thing to consider besides what's been mentioned is whether you live in California or New Jersey (from the wiki):
State taxation of HSAs

While contributions are deductible on one's federal income tax, this is not always true for state income tax. The following states are not in conformity with federal legislation and do not recognize HSAs, so contributions are not deductible and earnings are taxable:[3]

California
New Jersey

If you live in a state which taxes HSA earnings, consider investing the HSA in Treasury bonds or TIPS, which are exempt from state taxes. (In CA, capital gains issued by a TIPS/Treasury mutual fund or capital gain/loss on the sale of Treasury mutual fund shares would be subject to state taxes, but even if they are, most of the returns from Treasury bonds and TIPS would be income which is not subject to state tax. NJ exempts capital gains on Treasuries from state tax.)

In states that tax contributions, be aware that Federal tax-free rollovers into an HSA, such as the once in a lifetime IRA to HSA rollover, and an Archer MSA to HSA rollover, are treated as a non-qualified withdrawal from the IRA/MSA at the state level and subject to income taxes and penalties on the state return. Also in states that tax contributions, the state treats the HSA as a taxable account, taxable investing rules apply.

source: https://www.bogleheads.org/wiki/Health_savings_account
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