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