HSA Investments

For those who follow Mad FIentist know that the Health Savings Account (“HSA”) is “The Ultimate Retirement Account.” I had an old HSA from a previous employer just sitting in an account for years. It would earn a few cents of interest per month and then I’d have to pay a $3 maintenance fee every month since I was no longer employed by the company.

Effective January 1st of this year I signed up for my current employer’s HSA. Luckily my employer covers the monthly maintenance fee and also contributes $500 annually to my account, spread over my 26 paychecks a year. The 2015 IRS limit on contributions to a single filer’s HSA is $3,350 and employer contributions count towards this limit. I decided to contribute $100 a paycheck or $2,600 a year which would get my total contribution to $3,100 during 2015, including the employer contribution. I guess I’m short changing myself $250 of tax-free income but I won’t lose sleep over it. Maybe I’ll contact HR and try to max this account out in December.

After my new HSA was all set up, I rolled over my HSA monies from my old account to consolidate the two and eliminate the old maintenance fee.

I was on my Personal Capital account last week and noticed my HSA account was over $3,000, yippee! I had read other bloggers mention you can invest a portion of the balance in most HSA plans, so I logged onto my HSA account to explore my options. Right on the home page there was a button for “HSA Investments.” After some clicking around I noticed I could invest any excess monies over a limit I set, into the offered mutual funds. Basically they asked me how much cash I want to maintain in my HSA account and they would invest the rest into a mutual fund of my choosing with no transaction costs. My three options of amounts to leave in cash were $1,000, $2,000, or $3,000. It auto-filled $2,000 as my choice, so I thought that would be fine for now. I may adjust to $1,000 in the future, but my deductible is in the $2,000 to $3,000 range so I figured $2,000 would be a nice safety net if I ever needed the cash. I also have an emergency fund that could cover unexpected health costs, so I probably will eventually set the cash amount to $1,000.

After I selected to leave $2,000 in cash, I clicked continue to peruse my mutual fund options. I’ve been pretty spoiled with my employer’s great Vanguard 401k plan, so I was very disappointed at my options for my HSA. I thought I’d just invest 100% in a target 2050 fund since I like to keep things simple and it would be a majority equities which I want, but low and behold the expense ratio was approximately 0.72%! What’s up with that crap!?!? I’ve been spoiled with extremely low Vanguard expense ratios I suppose. Recently I got a notice from HR that my Vanguard Total Stock Market mutual fund’s expense ratio was reduced from 0.04% to 0.02% in my 401k plan. That’s only 2 basis points a year in expenses!

So I proposed a question on Twitter to see what other personal finance bloggers had their HSA monies invested in. Lifestyle Accountant came to the rescue and noted an S&P 500 fund with a 0.25% expense ratio which my HSA plan offered. It’s a far cry from my 0.02% expense ratio mentioned above, but I guess I have to take it.

I reached out to the HSA custodian and they told me what is offered is what is offered, and no other funds can be invested in. So then I sent a message to my HR, and they elevated my request to the “appropriate expert” but I haven’t heard anything back yet.

Vanguard also weighed in on the subject:

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Does your employer offer an HSA? Do you invest part of your balance? If so, are your mutual fund options somewhat decent?

23 thoughts on “HSA Investments

  1. Lifestyle Accountant

    Thanks for the shout out FF. I too was disappointed by the Wells Fargo investment offerings within my HSA Investment account and settled on one of the lowest cost options: WFIOX. With the .25% expense ratio, it’s not great but I don’t have much lower cost options for an aggressive fund that tracks the S&P.

    My former employer covered the monthly “maintenance” fee as well and since I left my job, I will get to pay the fee now. I’m going to be shopping for a new HSA account administrator and try and find something with some Vanguard investment options. So I’m hopeful that others can recommend a good company to go with that has low fees.

    That’s a great article by Mad Fientist and what had originally opened my eye’s to the power of the HSA as a savings vehicle. Gotta love that tax deferred growth and the additional contribution potential on top of a 401k and IRA!
    Lifestyle Accountant recently posted…Trip Review: 18 Days in Puerto Vallarta, MexicoMy Profile

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    1. Fervent Finance Post author

      Living in NYC I try to defer as much tax as possible! My state / local tax rate hovers around 10-11% which is insane. Thanks for the tip! I wish Vanguard administered HSAs. There would be no monthly maintenance fees and the lowest possible expense ratios! Good luck finding another administrator.

      Reply
  2. Amber Tree

    For a Belgian, it is interesting to read on all these savings plan options that you have in the US. Most of them do not exists in Belgium, we have alternative set-up’s. Mainly supported by the social welfare system in Belgium. As an example: I get on free dental check per year.

    What really pops out are the low low low costs of funds in these plans. Should I move to the US? 🙂
    Amber Tree recently posted…The ideal lifeMy Profile

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    1. Fervent Finance Post author

      Haha we love our Vanguard here in the US and their extremely low expense ratios. How do you like living in Belgium? Should I add it to my European travels bucket list?

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    1. Fervent Finance Post author

      What I also love about HSAs is the fact that you don’t pay federal, state or FICA taxes on the money. It’s a win / win!!!

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  3. Mrs. Budgets

    I’ve heard about HSA’s on many personal finance blogs but I still don’t quite understand if a HSA is something everyone can do. Is a HSA only for high deductible health care plans? I have my insurance through my work and pay little to nothing out of pocket. I’m thinking I don’t have the option of a HSA, am I correct? Should I ask HR?
    Mrs. Budgets recently posted…Father’s Day Edition: My Dad Is Bad With MoneyMy Profile

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    1. Fervent Finance Post author

      Yes an HSA is for high deductible health care plans. They are great for a number of reasons including you don’t pay federal, state, or FICA taxes on your contributions. Most plans I run across your employer also will contribute to your account since the plans are so cheap for them compared to traditional plans. You should 100% ask HR. I’ve looked at a couple plans for myself and relatives to help them pick out the most cost effective plan and 100% of the time the HSA plan was by far the best way to go. Good luck!

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  4. Mr. SSC

    We haven’t looked into HSA’s thoroughly. I reviewed my employer’s plan, but it seemed to be pretty expensive if they stopped covering the maintenance fees, and we couldn’t agree on whether it would be a long term win or not.
    The benefits with it for us as a family also seemed to be more expensive of a route to go than a tradition style plan. I wish it would work better for our situation, but not currently. Booo….
    Mr. SSC recently posted…Retiring “Big Sky”?My Profile

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    1. Fervent Finance Post author

      I would definitely do the math out. For myself who is healthy (knock on wood) and young, it is a no brainer. I also helped someone else calculate it. They were worried it would be more expensive since they are getting older and would hit their high deductible with procedures. Even with hitting their high deductible it was still better than a traditional plan since their contributions are federal, state, and FICA tax free. Also since the plans are so much cheaper than traditional plans, the employer kicked in a healthy sum as well into their HSA account (tax free). So I would kindly beg to differ that it would be more expensive, but then again every plan is different and you have to do the math. Good luck!

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  5. Chella

    All was really going well for you until you banged into the HSA investment disappointments. Sorry about that, I hope the request you elevated through your HR works in your favour so that you go for S&P 500 fund that seems to be promising.
    Chella recently posted…Things To Know About InflationMy Profile

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    1. Fervent Finance Post author

      HR at work still hasn’t gotten back to me 🙁 but the S&P 500 fund will be fine for now.

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  6. Mrs. PoP

    Mr PoP’s HSA allows us to invest anything over $100, so we keep most of it invested all the time. Sadly, his investment options aren’t the best, though. We’re in an S&P500 fund (I think JPMorgan’s) that has an expense ratio in the neighborhood of 20 or 30bps. Way higher than what we pay for VTI, but the tax benefits mean it’s still a no brainer to use the account even despite the higher fund fees.
    Mrs. PoP recently posted…Our New Tile Epitomizes Much Of Our DIY ExperienceMy Profile

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    1. Fervent Finance Post author

      The HSA account funds have to be used for health expenses, until age 65 where it turns into a normal IRA I believe. But a strategy people use is paying for medical expenses out of pocket with after-tax dollars, and then leaving the money in the HSA which they can pull on at anytime after. MadFIentist has great posts explaining how to use the accounts.

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