By Dan Miller, WCI Contributor
A Health Savings Account (HSA) can be one of the best investment options available to savvy investors. In addition to its stated purpose as a tax-free way to save on medical expenses, it is also a bit of a “stealth” retirement account. But choosing an HSA can be a daunting experience—you'll want to find an HSA custodian that offers a wide array of investment options while also choosing a custodian that minimizes fees.
Remember that in order to contribute to a HSA, you must have a High Deductible Health Plan (HDHP) as your only health insurance. Do not choose a HDHP JUST to get a HSA, but if an HDHP is right for you, be sure to take advantage of having access to an HSA.
What Is a Health Savings Account?
Health Savings Accounts (HSAs) were first established with the Medicare Prescription Drug, Improvement, and Modernization Act in late 2003. HSAs are triple-tax advantaged, because you deduct your contributions; your earnings grow tax-free; and, as long as you withdraw the money to pay for qualified medical expenses, your withdrawals don't get taxed.
To open or contribute to an HSA, you must have a high-deductible health plan (HDHP). An HDHP is a type of health insurance plan that comes with a higher-than-average deductible. The IRS sets the income limitations for HDHPs, and the deductible and out-of-pocket annual maximums are indexed for inflation. In 2022, the IRS has defined a high deductible health plan as any plan with a deductible of at least $1,400 for an individual or $2,800 for a family with total out-of-pocket expenses of $7,050 for an individual or $14,100 for a family.
There are many reasons why an HSA should be your favorite investing account, even besides the amazing fact that HSAs are triple-tax advantaged. Unlike contributions to IRAs, there are no income restrictions to investing in an HSA, which makes them even more valuable for high-income professionals. Also, high-income professionals are more likely to have the cash flow to manage a high annual deductible, which makes signing up for an HDHP less of a potential burden if the person gets seriously ill.
In 2022, the HSA contribution limit is $3,650 for a single person and $7,300 for a family.
How to Choose a Health Savings Account (HSA)
Typically, employers offer HSAs as an employee benefit, but you're eligible to open an HSA even if your employer does not offer one, as long as you're covered by a high-deductible health plan. And if your employer does offer an HSA, you don't actually have to use that one. There can be advantages to using the HSA that is offered by your employer, especially if your employer makes or matches contributions to your HSA. But it isn't imperative. Look around at several different HSA custodians, compare their offerings, and make an informed decision about which HSA is best for you.
Best Place to Open an HSA account
When deciding where to open your HSA, you should first think about what features are the most important to you. HSA fees, investment options, cash options, convenience, and features are all points of comparison that you'll want to look at. To help you decide the best place to open an HSA account, The White Coat Investor has compiled a list of the best health savings accounts, and we've done an in-depth comparison between two of our top choices—Fidelity and Lively.
How to Compare HSA accounts
When comparing Health Savings Accounts, you'll want to decide what account features are most important to you and use that as a basis for your comparison. If you're not going to regularly use and withdraw the money in your HSA (until retirement), then expense categorization may not be an important feature for you. If you're planning on using your HSA as a “stealth IRA,” the two features you're likely most interested in are the overall fees and making sure there are investments available with low expense ratios (like index funds).
Do All HSAs Have Monthly Fees?
Fees in Health Savings Accounts vary by custodian, and you'll want to make sure to choose an HSA custodian that minimizes the fees that you have to pay. Some custodians charge a monthly, quarterly, or annual fee just to keep your HSA open. Also, the investments offered by most HSA custodians generally charge expense ratios, which can impact your total return on investment (ROI). Make sure you understand the various fees that your HSA custodian charges so you can make an informed decision.
Is There a Penalty to Use HSA Funds for Non-Health Expenses?
Yes, there is a substantial disincentive to using HSA funds for non-health expenses. If you use the money in your HSA for a non-medical expense, you'll owe a 20% penalty on the total amount that was used for non-qualifying expenses. On top of that, the IRS will treat any non-qualified expenses as ordinary income, meaning that you will have to pay income tax on them on top of the penalty.
One exception to the penalty for using HSA funds for non-health expenses is once you reach the age of 65. After age 65, you can withdraw any money in an HSA without penalty. One important thing to keep in mind, however, is that if you use your HSA money for nonqualified expenses in retirement, you'll still owe income tax (just not a penalty).
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[This updated post was originally published in 2012.]
Fidelity does not currently offer HSA to individuals but they probably will in 2013.
I wouldn’t have guessed that based on their website.
Went to Fidelity today, and as of 12/20/13 they do not offer HSA to individuals. As you wrote, the website seems to indicate they do offer to individuals, so I also called them. The response was that they don’t offer “at this time”, so hopefully they will in the future.
As of Jan 15, 2014, Fidelity still won’t provide HSA accounts to individuals. I contacted them yesterday.
Thanks for the update.
Still not offered as of 8/25/2014
Just got off the phone with Fidelity. As of 7/15/2015, still not available to individuals.
Still not as of 9/8/15
Still not offered as of 7/5/2016. Just called them.
Fidelity still does NOT offer individual HSAs as of 2/21/2017. Odds are they only want to focus on capturing the large volume business accounts. Pity.
As of February 21, 2017, Fidelity still does not offer individual HSA accounts.
I have one. And I opened it on August 2013, after transferring in an HSA from an ex-employer. I am understandably confused by these comments.
So, I go and look and, sure enough, there is no option to open a new HSA account, online or otherwise.
I must say, it’s great. But looks like I’m grandfathered in somehow. After talking to a rep, it was clear that somehow I got lucky, or saw that I worked with a company that had a relationship with Fido and opened my account.
Just looked at Fidelity, where we have our account. They only offer an HSA account to corporations with 500 or more employees….bummer, wanted to keep everything there
Health equity also has a nice program
http://www.healthequity.com/
They do investing and have 1.5% interest and they charge $2.50 per month
Balance Tier Average Daily Account Balance Interest Rate APY*
Tier 1 $0–$2,000.00 0.05% 0.05%
Tier 2 $2,000.01–$7,500.00 0.10% 0.10%
Tier 3 $7,500.01–$10,000.00 0.70% 0.70%
Tier 4 $10,000.01+ 1.50% 1.51%
I’m relatively new to Healthequity, but have been very impressed with their customer service and ease of use. Their service representatives are very knowledgeable and always check if they are unsure of anything. High recommended.
I also opened HSA early this year in HealthEquity. Good thing was that my health insurance company pays set up fees and monthly maintainence fees. Investment is free but need to keep $2000. They will pay my insurance electronically. Their mutual fund choices are not great. Only reasonable one I thought was Dryfus small cap index with ER of 0.5. But I can just use that one fund for small caps in my portfolio, though little expensive than vanguard.
Also, I thought they charge around $4.85 per month currently if your insurances depending on your insurance. That’s free for me.
I guess I’m not seeing why you guys like Health Equity. According to your information you have to keep $2K in there getting paid 0.05% for it, there aren’t any reasonably cheap investments, and there are fees of $30 a year. That seems worse than all, or at least most, of the options discussed above. Am I missing something?
Sam, I’m not sure why you are talking about paying your insurance premiums with an HSA. You can’t do that except under certain limited circumstances (retired, collecting unemployment, COBRA, or long-term care insurance.)
Update on HealthEquity, they now have a nice selection of Vanguard funds at low ER. I was sour on them for most of the year but my employer funnels free “healthy living” money there. They have revamped their website and it is linked with health records nicely. Also, the minimum in order to invest is only $1000. Trading fees for the high ER funds are waived but there is a 0.033% fee to use the Vanguard funds.
http://healthequity.com/doclib/HSA_invest.pdf
I think my language might be misleading. I think that’s just another option. Not really better but not worse either. That was the default option with my Optima insurance.
While HSA bank looks to be best option, you have to keep $5000 or pay $36. With HealthEquity you have to keep only $2000. There are no other fees (might differ with different insurances)
And I didn’t mean to pay my insurance premiums. I meant all insurance claims show up electronically in my account and could just pay it electronically from the website. So won’t need to spend money for check book ( although could be mute point as I plan to use it as IRA and not pay claims).
I had also thought of changing to HSA bank after reading about it in Bogleheads forum. But wasn’t sure if it’s worth the hassle. With amount of money that goes in , I could work with just one fund for now. Let me know if you think otherwise
Update to HealthEquity: The $2000 minimum that needs to stay in cash earns 0.2% interest per annum. They have a great lineup of Vanguard funds and 2 DFA funds… I dont know if this is new or had always been there. For these investments, if done by oneself, without advisor services, the fees are 0.033% per month (or 0.1% per quarter)- apart from the ERs of the funds, of course.
Seems like a nice option.
I ruled out HSA Bank because you cannot speak to anyone on the phone. I have been trying but I certainly don’t want to have that experience. Poor customer service Curious if anyone else had that experience.
Hmmmm…never actually tried calling them. What did you need to call them for?
I recently spoke to HSA Bank for tax prep reasons… i sent an email, this came at the bottom of it. I called and spoke to a human. Not sure what you experienced.
If there are any additional questions or concerns that you would like addressed, please feel free to send an email to [email protected]. Otherwise, for specific account information please contact our Customer Contact Center toll-free at 1-800-357-6246 or international 920-803-4100. Our representatives are available Monday through Friday from 7 AM to 9 PM CST and Saturday 9 AM to 1 PM CST.
I similarly just had a bad experience with HSA Bank as well and found this site because I was looking for another provider. Tried both their customer service and email. I can’t even access my online account because their site won’t let me esign their consent form. Their attitude has been ‘oh well.’ Looking at other comments here this seems to not be isolated. Will look into rolling over as well to one of the other options.
Sorry you’re having lousy service. I only interact with them once a year, all online, and haven’t had any issues. But if I kept having them, I would look elsewhere as well.
Very familiar with terrible customer service from HSA Bank! I’ve filed complaints with federal regulators (OCC) and Better Business Bureau. I was just involuntarily separated from my employer and haven’t replaced coverage since COBRA was too pricey. HSA Bank informed after coverage ended that they would start charging me $3/MO PLUS $2.50 X 2 investment accounts (both of which are and always have been unfunded) starting the new month. Despite emails and numerous hours on the phone with their customer service telling me they can’t give my $11,000+ balance account the fee waivers clearly depicted when above $5000 without any fine print on the website and if you ask them by phone or email before opening an account. In order to get me off the phone I was told by Diane that she couldn’t even tell me if they offered that account, I’d have to apply for a new account over the website and in about a week I’d be in their system and could call back to ask if they might reduce the fees…of course the site won’t let you apply if you don’t have the HDHP insurance in force… later told that it would take them 2 months to process transfer to another provider during which I’ll be getting all those fees. Criminal!
So you’re complaining that they didn’t charge you fees they clearly disclose for years?
I guess if losing $11 is “criminal” then you have good reason to be upset. Amazing to me what you will file a complaint over though.
Sorry about your job loss. Hope you find something even better quickly.
No, I don’t think you understood that at all. Did you read your own article terms on HSA Bank? As you mention above, they clearly disclose IN WRITING that they DO NOT charge account fees above $5k balance (which $11k+ clearly is), as the commenters here all seem to understand. However, despite my having more than double the required minimum to continue paying no fees, they are refusing to honor the published terms disclosed on their site. They also want to count two unfunded “Investment account” inquiry as additional accounts. Apparently, asking them for details on the programs, without actually funding them is reason enough for them to start charging you monthly fees. $84/year in fees that their own terms clearly state they will not take…THAT – is fraud. Maybe you enjoy being defrauded, but I don’t. I thought the multiple readers/commenters citing “poor customer service” with HSA Bank might recognize the issues, and follow suit.
Forgive me, that’s $96/year …($3+$2.50+$2.50)x12…fees they claim they do not collect. when your balance exceeds under half where mine stands.
You have $11K in the savings account component and they’re still charging the fees? Now I understand why you’re upset. Although if they’re not continuing to charge it on a monthly basis, I wouldn’t waste much time and effort trying to get my $11 back.
That makes sense, Sam. Thanks for the clarification. That is a nice feature. I have no idea if HSA Bank has that feature as, like you, I plan to use it mostly as a stealth IRA. I agree that it would be relatively low yield to change at this point, especially since you do have one fund in there you like.
Health Savings Administrators started using HSA Bank this summer. They sent me a letter going over the changes. It says there are no minimum balance fees. That part doesn’t affect me because I only have mutual funds, but it looks like I would still save money by using HSA Bank directly.
I just use a local credit union. Our health care expenses end up using the money, but at least I don’t have to pay Fed taxes on the money. The credit union has a $2 monthly fee. They pay hardly any interest, but I have quick access to the funds.
How does Sterling HSA stack up?
http://www.sterlinghsa.com/products/hsa/account_plans_fees/
http://www.sterlinghsa.com/products/hsa/investment_services/
Seems pretty high-fee to me.
Hello White Coat Investor,
Thank you for your helpful website. I wonder what you think about my current HSA plan. It is through Union Bank & Trust Company (http://www.ubt.com/personal/HSA-accountinfo.html). The fee is only $5 per quarter. Interest rate has been varried, most current annual % yield 0.21%. However, almost all of investment options seem to have high ER/management fees or is front load (i.e. Fidelity Advisor Freedom Lifecycle Funds, Goldman Sachs Satelite Strategies, AF EuroPacific Growth, Thromburg International Value, T.Rowe Price Int’l Growth and Income, MFS value, American Funds Growth Fund, ect… as listed on their website).
I did choose PIMCO Total Return D because its relatively less expensive ER 0.75. If one is not happy with current offerred HSA plan, can he/she switch or does the whole practice have to switch as well?
The rest of my investment are with Vanguard for other tax deferred/Roth IRA/and taxable account. I used bonds in my HSA as part of my whole portforlio assess allocation for goal of tax efficiency. Is that a reasonable approach?
Again, thank you for your great website.
While $5 a quarter isn’t too bad, the rest of it sounds downright crappy if you’re actually using the HSA as a stealth IRA and not spending it.
Your HSA belongs to you. You should be able to use any one you like. If you’re employed it may be best to have your employer put your HSA contributions into the UB&T HSA and then periodically roll them into your HSA of choice. If you’re a partner I’d just make your contributions into your HSA of choice as there’s no payroll tax savings. Honestly I’d probably get the rest of the group to change too.
I think you need to correct the HSA Administrators fee info which is 0.08% per QUARTER not per year. So actually 32 basis points per year.
http://www.hsaadministrators.info/hsa-fees
Good catch Mark. Indeed, it is 0.08% per quarter.
I’ve been pretty happy with Optum Health Bank. The interest rate is a nominal 0.92% but the monthly fees are only $3.00 and the investment options include the following mutual funds which are no-load or load waived:
Fund Name Ticker Symbol Asset Class
Amer. Cap World Grow & Inc (F) CWGFX World Stock-Large Value
Blackrock Equity Dividend MDDVX Equity
Federated Master Trust Mon Mkt FMTXX Money Market
Federated US Govt. 2-5 Year FIGTX Intermediate Government Bond
Goldman Sachs Balanced Strat GIPAX Allocation
Goldman Sachs Growth Strategy GGSAX Allocation
Goldman Sachs Growth&Inc Strat GOIAX Allocation
John Hancock Classic Value PZFVX Equity
John Hancock High Yield A JHHBX Fixed Income
John Hancock Large Equity Fund TAGRX Equity
John Hancock Money Market Fund JHMXX Money Market
JP Morgan Prime Money Market VPMXX Money Market
Keeley Small Cap Value KSCVX Equity
Mainstay S&P 500 Index MSXAX Equity
Munder Mid-cap Core Growth MGOAX Equity
Neuberger Berman Genesis Fund NBGNX Equity
Neuberger Berman Real Estate NREAX Equity
Oppenheimer Developing Markets ODMAX International
PIMCO All Asset PASAX Allocation
PIMCO GNMA Fund PAGNX Fixed Income
PIMCO Low Duration PTLAX Fixed Income
PIMCO Real Return PRTNX Fixed Income
PIMCO Small Cap Stocks Plus PCKAX Equity
Thornburg Value TVAFX Equity
Vanguard Global Equity VHGEX World Stock -Large Blend
Vanguard S&P 500 Index VFINX Indexed
Vanguard Wellington Fund VWELX Equity
Looks like a lot of high ER funds. How many of those funds other than the 3 Vanguard funds have an ER under 50 bp? I don’t think I would be happy with those fund options.
What is the point of having two SP500 index funds? BTW the Mainstay SP500 has an ER of 70 basis points for investor shares (according to Morningstar) vs 5 basis points for Vanguard Admiral 500 or 17 bp for Vanguard 500 Investor shares.
I was just happy to see the Vanguard 500 Index as I don’t have that much in the HSA and will be switching out of my HDHP this year. For someone who has enough saved in the HSA to consider more than an index fund I agree there are probably better options available elsewhere.
Need advice on my HSA. Our company uses HSA Bank.
I like the idea of investing (above a certain amount) for Stealth IRA purposes… I am using $5k as threshold minimum for cash and everything above this amount to invest)
As part of our company’s benefits, the company contributes about 80% (but doesn’t max the HSA).
I asked if they could deduct remaining from my pay monthly to max the annual contribution ($6,450/year total in our case).
They said they were advised by tax person NOT to do this, and for me to contribute post-tax dollars on my own funds to max amount.
I’m assuming theoretically I could deduct the amount contributed, so I wouldn’t pay taxes on it.
My question is…..will this complicate things down the road when taking out funds?
Some portions of the investment will be pre-tax and others would be post-tax/deductible.
I know with IRA’s this makes things more complicated, but wondered what people thought about in a HSA account.
thanks
I don’t know why the tax person advised against this. You cannot contribute post-tax dollars from your own funds. You should, however, be able to contribute pre-tax dollars from your own funds. As long as you have a HDHP you can contribute up to $6450 per year to an HSA. If the company is putting in say $5K, you can open up your own HSA and put in $1450. You can probably actually put it into the same HSA. You then deduct the contribution on the 1040, line 25. I believe that that if you’re an employee, contributing on your own will cost you a little more in payroll tax than if the company made the contribution for you.
Since all the money in the HSA is then pre-tax, there’s no complications down the road to worry about. As long as you spend it on health care, it’ll never be taxed. If you spend it on something else in retirement, it’s like a traditional IRA.
i’m confused…..mainly on the wording of pre-tax and post-tax
here is HSA’s webpage http://www.hsabank.com/hsabank/Education/Tax_Advantages.aspx
So, is this what you mean?
My company puts in $5k (not deducted from my pay, a benefit of working there), and I put in $1450 with my own funds (will file deduction on THIS amount for 2013 taxes)?
I’m just wondering if this will complicate things down the road if I decide to use funds for non-healthcare related expense after age 65. Parts of the funds and gains will be pre-tax but not deducted because it didn’t come out of my pay and parts would be deductible.
Maybe I just need to talk with a CPA. 🙂
IRS regs allow you to contribute pre-tax if your employer has a Section 125 plan that includes HSA contributions. In addition, you may contribute post-tax as well. The differences are these:
1) You report pre-tax and post-tax contributions on different lines of the IRS form 8889 when you file.
2) You cna avoid the 7.65% FICA tax by contribution pre-tax payroll deduction.
I hope this helps clarify.
I don’t want to discourage you from talking to a CPA, but I don’t think this is as complicated as you think it is.
The money your company puts in is pre-tax. You’re not taxed on it (it doesn’t show up as income on your W-2) and neither is the company (who deducts it as a business expense). The money you put in is also pre-tax, meaning it is deductible on your return for the year in which you contribute it.
So it is all pre-tax. Since it is HSA money, as long as you spend it on health care it is never taxed again. If you decide to buy a boat in retirement with it, well, then it’s taxable, no matter whether it came originally from your employer’s pocket or your pocket. It shouldn’t make anything complicated at all.
The only difference involves payroll taxes. Money your employer contributes directly isn’t subject to payroll taxes (you don’t pay payroll taxes on benefits.) Money you contribute directly has already been taxed for SS and Medicare, and there is no mechanism whereby you can get that money back. Not fair, but that’s the way it is.
To further expore this idea…. I have my own S-Corp (I am the owner and sole employee) which is contracted to my practice. I give myself a salary from my S-Corp (PLLC). Can I fund my HSA from my PLLC to avoid the payroll taxes?
I’ve been using Saturna Capital (www.saturna.com/) for my HSA. They don’t charge any monthly maintenance fees, and they have several no-fee mutual funds to choose from, although the expense ratios aren’t great. I believe you can also choose your own investment vehicles, but you have to pay $15 commission per trade.
They seem like one of the better HSA providers, no?
I guess $15 is better than a higher fee, but when it’s free at HSA Bank, it’s hard to say Saturna is better.
I believe HSA bank charges a standard fee of $2.50/mo for HSA balances below $3000. The investment option costs an additional $3/mo unless your HSA balance (not including investment funds) is at least $5000. So if you want the investment option, you have to pay $5.50/mo or earn only 0.15% APY on $5000/year. Health Equity Inc. has investment options with no monthly fees if you maintain a $2500 non-investment balance. Health Equity fees are lower but the investment options are fewer and not as good for the most part.
There are actually now several excellent, low-fee Vanguard options through Health Equity. In addition to Large cap index, they recently added extended market index, Total International Stock Market, Total Bond Market, Target 2060 and Target Retirement. By combining TBM and Target 2060 in appropriate ratios, you can pretty much replicate any Target or LifeStrategy fund you like although with some tracking error that will depend on rebalancing frequency. If you want even lower expense ratios then you can combine TBM, TISM, large cap index and extended market index to nearly replicate a Target fund as well. You can also tilt a bit towards international or mid-caps if you so desire.
That’s wonderful to hear. The more good options the better.
Just curious how you know this? I called Health Equity today to ask about the new Vanguard options but they said all they know at this time is that new options will be starting, but they’re not sure what those are at this time. Thanks
These funds are available in my account. Perhaps the options are only available if you are insured by Optima.
Anyone have any experience with the vanguard HSA?
never mind, just found out it is HSA Administrators