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.]
Just a correction on the minumum debit card balance. There is no minimum required balance, and no bank fee for the debit card for the Health Savings Administrator customers at HSABank. That $5,000 minimum is in place for their standard customers. Pat Jarrett, VP, Health Savings Adminstrators
Thanks for that information. Welcome to the blog Pat.
Another nice thing about Health Savings Administrators is that they allow you to pay the yearly fee out of pocket, so it doesn’t have to come out of your HSA investments.
I thought I’d share more on Alliant’s HSA. It seems like a good deal to me, although Vanguard funds are limited? What are your thoughts?
You have to keep $1000 minimum in Alliant’s HSA account, but any amount above that can be invested. A $5.95/month fee applies, and is deducted from the investment portion of the HSA. Unlimited mutual fund trades are offered in return for this.
https://www.savedaily.com/partners/acu/smi.asp
Here are the available funds:
ALLIANCE BERNSTEIN SMALL/MID CAP
ALLIANCEBERNSTEIN HIGH INCOME CLASS A
ALLIANZ NFJ INTL VALUE FD CLASS D
ALLIANZ RCM GLOBAL RESOURCES FD D
ALLIANZ RCM GLOBAL SMALL CAP CL D
ALLIANZ RCM WELLNESS FD CL D
AMERICAN BEACON LARGE CAP INVESTOR
AMERICAN CAPITAL WORLD GRTH & INC A
AMERICAN EUROPACIFICGROWTH CL R4
AMERICAN FUNDAMENTALINVESTORS CLASS A
AMERICAN SMALL CAP WORLD CLASS A
BARON SMALL CAP FD
BLACKROCK ENERGY & RESOURCES A
BLACKROCK EQUITY DIVIDEND FD CL A
BLACKROCK GLOBAL ALLOCATION CL A
BLACKROCK INFLATION PRO BOND PORT INV A
BLACKROCK PACIFIC FUND CL A
CALVERT SHORT DURATION INC CL A
CAMBIAR OPPORTUNITY INVESTOR CL
COHEN & STEERS REALTY SHARES
COLUMBIA GLOBAL BOND CL A
COLUMBIA HIGH YIELD BOND Z
COLUMBIA TECHNOLOGY FUND CL Z
DAVIS NEW YORK VENTURE CLASS A
DELAWARE DIVERSIFIED INCOME FD CL A
DELAWARE EMERGING MARKETS CLASS A
DELAWARE HEALTHCARE FUND CLASS A
DELAWARE INFLATION PROTECTED BOND CL A
DELAWARE VALUE
DREYFUS OPPORTUNISTIC MID CAP VALUE CL A
DREYFUS TECHNOLOGY GROWTH CLASS A
DWS CORE FIXED INCOME CLASS S
DWS ENHANCED COMMODITY STRATEGY A
DWS HEALTH CARE CL S
DWS TECHNOLOGY CL S
EAGLE MID CAP STOCK CLASS A
FBR GAS UTILITY INDEX
FIDELITY ADV HIGH INC ADVANTAGE CL T
FIDELITY ADVISOR EMERGING MARKETS INCOME A
FIDELITY ADVISOR NEW INSIGHTS CL A
FIDELITY ADVISOR SMALL CAP CL A
FIDELITY ADVISOR STRATEGIC INCOME A
FIDELITY CALIFORNIA MUNI MONEY MARKET
FIDELITY DAILY MONEY FUND
FIDELITY GROWTH STRATEGIES FUND
FIDELITY REAL ESTATE INCOME
FIRST EAGLE GOLD CLASS A
FIRST EAGLE OVERSEAS CLASS A
FRANKLIN ADJUSTABLE US GOVERNMENT A
FRANKLIN GOLD AND PRECIOUS METALS CL A
FRANKLIN INCOME CLASS A
FRANKLIN RISING DIVIDENDS CLASS A
GOLDMAN SACHS SHORT DURATION GOVT CL A
HARBOR BOND INST
INVESCO BALANCED – RISK ALLOCATION CL A
INVESCO GOLD & PRECIOUS METALS INV
INVESCO VAN KAMPEN AMERICAN VALUE CL A
INVESCO VAN KAMPEN COMSTOCK CLASS A
IVY ASSET STRATEGY CL A
JANUS OVERSEAS CLASS R
JOHN HANCOCK HIGH YIELD FD CL A
JPMORGAN CORE BOND FUND CL A
JPMORGAN CORE PLUS BOND CLASS A
JPMORGAN EMERGING ECONOMIES CL A
JPMORGAN EMERGING MRKTS DEBT FUND CL A
JPMORGAN EQUITY INDEX FUND CLASS A
JPMORGAN GOVERNMENT BOND FUND CLASS A
JPMORGAN US REAL ESTATE CLASS A
JPMORGAN VALUE ADVANTAGE CL A
KEELEY SMALL CAP VALUE CLASS A
MANNING & NAPIER WORLD OPPT SER CL A
MFS AGGRESSIVE GROWTH ALLOCATION CLASS A
MFS CONSERVATIVE ALLOCATION CLASS A
MFS DIVERSIFIED INCOME
MFS GLOBAL EQUITY CLASS A
MFS GOVERNMENT SECS CLASS A
MFS GROWTH ALLOCATION CLASS A
MFS MID CAP VALUE
MFS MODERATE ALLOCATION CLASS A
MFS UTILITIES CLASS A
MORGAN STAN INSTL REAL ESTATE PORT P
MUTUAL SERIES GLOBAL DISCOVERY CLASS A
OAKMARK FUND I
OPPENHEIMER GOLD & SPEC MINERALS CL A
OPPENHEIMER REAL ASSET
PIMCO COMMODITY REALRET STRAT ADMIN CL
PIMCO EMERGING MARKETS BOND ADMIN
PIMCO GLOBAL BOND
PIMCO HIGH YIELD CLASS D
PIMCO LONG TERM US GOVT ADMINISTRATIVE
PIMCO REAL RETURN
PIMCO SHORT TERM ADMINISTRATIVE SHS
PIMCO STOCKSPLUS TOTAL RETURN CL D
PIMCO TOTAL RETURN ADMINISTRATIVE SHS
PUTNAM AMERICAN GOVTINCOME CLASS A
RS TECHNOLOGY CLASS A
RUSSELL SHORT DURATION BOND CL S
SUN AMERICA FOCUS DIVIDEND CLASS A SHARE
T ROWE PRICE BLUE CHIP GROWTH INC
T ROWE PRICE CAP APPRECIATION
T ROWE PRICE REAL ESTATE FUND ADV CL
T ROWE PRICE RET 2050 ADV CL SHS
T ROWE PRICE RTMT FUND 2020 ADV SHRS
T ROWE PRICE RTMT FUND 2030 ADV SHRS
T ROWE PRICE RTMT FUND 2040 ADV SHRS
T. ROWE PRICE RETIREMENT 2015
T. ROWE PRICE RETIREMENT 2025
T. ROWE PRICE RETIREMENT 2035
T. ROWE PRICE RETIREMENT 2045
T. ROWE PRICE RETIREMENT 2055
TCW CORE FIXED INCOME N
TCW EMERGING MKTS INCOME CL I
TEMPLETON GLOBAL BOND CLASS A
THORNBURG INTL VALUE CL A
TURNER MIDCAP GROWTHINV CL
VANGUARD 500 INDEX FD INVESTOR SHS
VANGUARD BOND INDEX TOTAL MKT INVESTOR
VANGUARD ENERGY INVESTOR FUND
VANGUARD HEALTH CARE INVESTOR
VANGUARD LONG TERM INVMT GRADE INV
VANGUARD LONG-TERM BOND INDEX PORT INV
VANGUARD MID CAP INDEX SIGNAL
VANGUARD PRECIOUS METALS & MINING INV
VANGUARD REIT INDEX INV.
VANGUARD SHORT TERM BOND INDEX INVESTOR
VANGUARD SMALL CAP INDEX – SIGNAL SHRS
VANGUARD US GROWTH INVESTOR
I’ve heard good things about the Alliant HSA. I like HSA Bank better, but you could do much worse than Alliant. The lower minimum is nice and the free trades are nice. But to be honest, I do an HSA trade once a year….when I make my contribution. It’s just a little tiny IRA on the side for me. It’s all TSM. $5K in the bank account and the rest in TSM. Simple, low-fee. But depending on what you want to do with your HSA, you might like access to all those funds.
Great Site, thanks. I use Bank Of America (benefitsolutions.bankofamerica.com). Now, there is the monthly maintainence fee of $4.50 and you have to keep $1000 in your HSA account, but anything above that you can invest. So, with that, I only make .10% for interest since my balance is below the $2,500.01, but I’m ok with that since I invest the rest. They have some decent funds to invest into with low expense ratios. There is no fee/transaction cost to invest (except expense ratios, of course) into their fund choices and to sell them when you need to have the money back in your HSA account. So, that I liked.
I am considering going with HSA Bank (NYSE listed) over HSAadminstrators (fly by night operator??). Can anyone confirm if HSA operators are insured ?
While both vendors are quite good, I’m not sure what you mean by insured. Do you mean is the account backed by FDIC?
IRS regulations require that every HSA administrator has a custodian that meets cetain minumum finacial and experince criteria set by hte IRS. Most HSA providers are banks and meet these standards easily by virtue of their compliance with banking regs. Third party administrators, like us at HSA Administrators, contract with a bnak to be our custodian. We happen to use HSA Bank as our custodian. In addition to the fiducary oversight provided by the custodian, wea are audited and our staff are all bonded and insured as a way to protect your investments.
Pat & WCI – to clarify when I visited the HSAadminstrator website, there was very little in the “About Health Savings Administrators” section that provided me confidence that the company was strong (viz-a-viz “HSA Bank is a division of Webster Bank, N.A., Member FDIC” – the FDIC stamp gives me peace of mind).
Below is an excerpt from the article that caused me to get concerned. So I want to be sure that my HSA money will be safe (i.e. in the unlikely event of something like the one described below, what is my protection for my hard earned HSA money)
“Two co-founders of Canopy Financial Inc., a bankrupt Chicago-based health savings account administrator, are accused of defrauding investors of approximately $75 million and misappropriating nearly $19 million from accounts used to finance health care expenses.
Jeremy Blackburn, Canopy’s former president and COO, was charged in December in a civil enforcement action filed by the U.S. Securities and Exchange Commission.
New charges filed Monday, March 1, by the FBI in Chicago allege that Blackburn and Anthony Banas, Canopy’s former chief technology officer, misappropriated the money from HSAs and flexible spending accounts that Canopy held and administered.”
Link to article: https://www.workforce.com/articles/safe-harbor-urged-for-employers-with-automatic-401-k-plans
Thanks.
VJ – Yikes, that is scary. Stick with a national bank chain, then. Not that they can’t fold, but harder for them to defraud you. Like I posted earlier, Bank of America cost $54 annually. Another bonus is the debit card you get is free and so are the replacements if you need them and you can have up to 7 people on the account. Now, the APY is low, but for investing there is no fee to buy and sell (just watch expense ratios, of course) compared to Alliant Credit Union. In fact, when I called the rep on the phone couldn’t even tell me about any of the investments options. She kept telling my to log in. Though I do believe I saw LPL Financial lot in the fine print.
HSA Bank if changing their fees as of September 1st, if you have $4850 in your HSA account you avoid the monthly fee. To me, that is too much money to have sitting and not really earning much. Plus, there is an annuall $24 fee for investing. Unless I misunderstood the rep when I called.
Best of luck, I looked at many of the ones listed above and found that if I wanted to avoid the monthly fees I had to leave too much in my account. For some that may be fine/safe.
Good luck!
An update on healthequity which my employer is defaulting with:
https://www.healthequity.com/documents/USU_Fee_Schedule_Interest_Rates.pdf
No maintenance fees above $1500 (3.95/mo otherwise) and no investing fee. Investments are done via Optima Health. They have a fair list of lower-tier funds but only one vanguard fund. Not sure if there are more when you are logged in as some have posted above, mentioning several vanguard funds. Need $2000 min to invest.
https://www.healthequity.com/optima/optima_investment_options.pdf
Any thoughts?
WCI
Thanks for your Blog, I’m learning lots of great information.
Could you please clarify your choice of HSA providers. In the above post you mentioned HSA Bank as your choice, but in your “Stealth Roth” opinion you said
“My recommended provider for an HSA is Health Savings Administrators”
If you do like HSA bank for the stealth roth approach, do you leave the 5K in the savings acct to avoid the $3 fee or just invest all the funds and pay the $36
Thank You!
I think both HSA Bank and Health Savings Administrators are both great choices. As noted in this post, when I actually went to open one, I went with HSA Bank. The previous post was written at least a year earlier when Health Savings Administrators was a slightly better choice IMHO and I just never went and updated it. I leave $5K in the savings account, but it’s reasonable to pay $36 and invest it if you prefer.
I’ve been using Saturna , local, I live in Bellingham. The Amana funds, esp. Growth, at Saturna have done very well but are expensive, 1.11% for Growth, 1.20% for Income. There is no custodial fee or minimum balance required in a money market or such.
I also use HSA Administrators for their Vanguard funds.
They charge an annual custodial fee $45, paid outside of account, plus .08 per qtr (.32 annual) per acoount and then there is the Vanguard fee. The HSA fee maxes out at $16 qtr (= .08 x $20,000)PER ACCOUNT, ie fund. You can use up to four funds.
They tell me the Total International Stock Index, will be available as an Admiral later this year.
Stealth IRA indeed. Any money I find laying around goes first in HSA, then Roth, or IRA, or SEP.
By April 2014, I’ll have around $19,400 in my HSA. It’s currently earning .1% (.001) APY. I’m pretty much convinced that HSA Bank is the route I should take. This will be a stealth IRA for me, so as a piece of my asset allocation, I’m thinking I’ll invest in Vanguard Total Bond Market ETF (BND). Keep it fairly low risk since the money is far easier to access than “real” retirement accounts. Does BND sound good to you?
Also, to avoid the $66/year fees ($2.50/monthly account maintenance + $3.00/monthly investment fee), I plan on maintaining the $5,000 savings minimum (Effective January 1, 2014, the adjusted Balance Waiver Amount will be $4,925). I’m comfortable doing this, but do any of you just invest 100% and pay the fees?
I do the same as you’re planning, but I have run into people who prefer to pay the fees and keep the money invested. I consider the $5K kind of a health care emergency fund, since my deductible is ~$3K and co-insurance would probably eat up the rest for a significant expense. The rest goes into aggressive investments. Whether I’d actually tap that emergency fund or keep the HSA as a stealth IRA I won’t decide until the situation comes up.
Can I ask why you have it in aggressive investments? Is there an advantage to having aggressive investments allocated to the HSA in your overall asset allocation, or is it just a preference of yours?
I use aggressive investments because I don’t plan to spend it for decades.
I thought about this a little more, and out of any tax-advantaged account, the HSA seems to be the one you would want to try to grow the most aggressively… if you are okay risking your health savings. You put the money in pre-tax and pull it out tax-free assuming you have past and current medical expenses to cover it. Seems like a waste keeping it in low risk, low return investments with that in mind. I think I’ll be dropping mine into Vanguard Total Stock Market ETF (VTI) as part of my overall asset allocation.
That’s what mine is invested in, aside from the first $5K.
My employer offers the Wells Fargo HSA option, which you mentioned to be not too great given the dearth of fund options (https://www.wellsfargo.com/investing/hsa/funds-options/). In my situation, the monthly maintenance fee (around $4) is paid by my employer and it appears that the funds available have no commission or load fees either (https://www.wellsfargo.com/downloads/pdf/com/retirement-employee-benefits/hsa/UsingYourHSAtoPrepareforRetirement.pdf).
I do see a few aggressive funds (large cap) that I’d like to invest in as well. Do you have any concerns or comments on the Wells Fargo options?
I suppose that I could also open my own account at HSA Bank, pay the maintenance fees, and have broader options of investments (like VTI). I wonder if the gains would be worth the extra step annually to transfer funds from my employer HSA to my personal one. This brings up another question: (1) If I leave my current job prior to retirement, am I correct to assume that I’d be responsible for all of the maintenance fees?
Thanks for the thorough overview.
I’m sure you’d be responsible for maintenance fees. I’d probably go to the trouble to roll it over every year to get better investments. I find the Wells Fargo funds way too expensive. Their diversified international fund, for instance, is 1.25% a year.
New link for Lake Michigan Credit Union:
https://www.lmcu.org/banking/savings/savings_hsa.aspx
Seems like ELFCU is getting a lot of attention recently with their HSA, you can join by making a one-time $5 donation to a non-profit organization called Tru Direction.
Elfcu doesn’t charge any setup fee or maintenance fee. You can invest 100% of your money via TD Ameritrade once you have at least $2,500. If you choose to leave some money behind in the savings account at Elfcu, you earn 1%, which is about the best you can get these days for a savings account. TD Ameritrade also doesn’t charge any maintenance fees. You can invest in 101 commission-free ETFs, 32 of which are from Vanguard, in addition to other investments normally available through TD Ameritrade.
Elfcu offers a better HSA than HSA Bank. If you leave money in the savings account, the interest rate is higher (1% vs 0.3%). If you invest the whole thing, you don’t pay the $66 maintenance fees HSA Bank charges.
Thinking about taking my money out of HSA Administrators ($25 closing fee) and transferring to ELFCU.
Yeah, I’m wondering what compelling reason I have to continue keeping $5000ish in my HSA Bank savings account to avoid the fees when I could just invest it all through ELFCU + TDA.
Note: If you’ve started investing through HSA Bank for 2014 in TD Ameritrade and you are thinking of switching, there is a 30-day hold period for ETFs to avoid paying short-term trading fees.
correct, you do need to wait the 30-days before transferring assets to another HSA.
I have been trying to figure out if there is a way to avoid the $25 closing fee that HSA Administrators charges to close an account. Thankfully ELFCU does not charge any opening fees.
I have considered the idea of “rolling over” the entire amount in the HSA Administrators HSA to my personal checking account and then promptly writing a personal check to ELFCU. (Note – this is only allowed once/year). However, when I called HSA Administrators they will only allow your account to go down to $50. I have no interest in leaving $50 with HSA Administrators. Therefore, it seems to unfortunately make the most sense to pay the $25 closing fee at HSA Administrators and fill out the transfer paperwork at ELFCU…
Dang, I forgot about the $25 closing cost for HSA Bank. Maybe I’ll get all invested for 2014 and wait to see if ELFCU really blows up. Then I’ll bite the $25 bullet.
Thanks for the tip on ELFCU. I hadn’t heard of them until today. That’s definitely compelling. Keep in mind I don’t think this was an option when the post was written. I think ELFCU has only been around a couple of years, and no one was talking about their HSA until the last month or two. Looks like HSA Bank has got some real competition. Hopefully they step it up so I don’t have to move my money! That $5K earning 0.3% is getting to be a smaller and smaller portion of my HSA every year though. I mean, if I make 8% on that $5K instead of 0.3%, we’re only talking about a couple of hundred dollars a year. It’s not exactly a life changing amount of money. Still, if I were opening an HSA today…I’d probably do it at Eli Lilly FCU. Maybe I’ll think about an HSA rollover in a month or so and do a post on it.
I just got notice that elfcu is charging $3 monthly maintenance fee starting 7/1/14 if your balance drops below $2500. I just completed all of the paperwork to transfer my HSA over…arg!!!! I am not back in the market for a fee free investment HSA account.
Yes, I saw that. Annoying isn’t it?
Please allow me to clarify several points in the conversation.
Health Savings Administrators is separate from HSA Bank. We do use HSA bank as our custodian and to supply debit cards for those who want them. We do not require a balance to be held in the checking account to avoid fees. HSA bank has this requirement for some of the investment options they provide. Our annual fee of $45.00 is structured to allow first dollar investing.
The $50.00 balance requirement that Matt referenced does not come into play if you choose to close the account. That is designed to accomodate any market movement and avoid a negative balance when withdrawals are made.
Pat Jarrett — I’m always a little confused as to why people don’t choose always choose Health Savings Administrators if they plan to use it as a retirement account. Your Vanguard investment offerings, fee structure, and and no minimum cash balance requirement allows individuals with large-balance HSAs to save money (pay less, earn more). My spreadsheet comparisons easily concluded you were the best custodians for my retirement account. So thanks! We’ve enjoyed doing business with you.
Just logged onto ELFCU HSA to do my quarterly transfer of funds (employer contributions) to the TDAmeritrade account, only to see a newly implemented wire transfer fee of $24, for each transaction. Gross.
Probably will stick with ELFCU as HSA provider, but certainly less excited given this new fee, magnified if you’re single, which in the best case is equivalent to a sales load of ~0.75%, higher if you do multiple transfers in a given year.
You might be interested in this: https://thefinancebuff.com/elfcu-best-hsa-adds-fee.html
Thanks for the link!
While I’m not familiar with the various transfer options available to banks, hopefully ELFCU will choose to implement one or more of the various cheaper alternatives discussed.
Like the author, I’m likely to stick with ELFCU, but now only transfer 1x/year instead of quarterly. However, if customers were to ever lose access to commission-free ETFs offered at TDA, I may consider looking elsewhere.
I hate bait and switch tactics, which this feels like. I’m still at HSA Bank and kind of glad about it.
Same here. I am with HSA Bank and was considering a switch later this year. I’ll probably wait to see if ELFCU switches to ACH before I make a move.
Jim, do you hold $5k in HSA Bank savings to avoid all fees? I still do.
I do. Truthfully, that $5K is the HSA. The rest is a retirement account to me.
First off, thank you for the wonderful website.
2 questions:
1. What do you guys think about HSA investing in the Vanguard Wellington fund? Do you think the Wellington has less risk because of the bond component? I’d like to use the HSA as a stealth IRA but keep it as a backup in case of medical catastrophe. Murphy’s law demands that this medical catastrophe would occur during an extreme bear market. Would Wellington provide some protection in this scenario?
2. Does HSA’s have similar asset protections as 401K? Is it state-by-state?
Thank you so much!
2.
1. I think a better solution is keeping a chunk of the HSA in cash. I keep $5K in cash. That’s precisely the amount HSA Bank requires to avoid fees. How convenient. But Wellington is a low-cost, stodgy actively managed fund that is hard to criticize given it’s nearly a century of solid returns.
2. It is state by state and not yet worked out by case law as HSAs are fairly new.
BMO Harris Bank offers a no-free HSA. Details are here:
https://www.bmoharris.com/us/personal-finance/checking-accounts/health-savings-account#page=page-2
No investments are offered, but if you’re just looking for a place to park a few thousand, this is the best I could find. The little bit of interest it pays (0.10% or so) obviously won’t keep up with healthcare inflation, but at least you’re not losing money to fees on top of that. It’ll do the trick for a year or two while you spend it on small expenses or get back into an employer-matched HSA.
“BMO Harris Bank offers a no-free HSA.”
Drats… that’s no-fee*
26 yo PGY1 ortho resident married with no kids. Goal of HSA to me in a perfect world would be to not spend it keep adding to it and have it converted to an IRA down the road. I get 500 a year that my hospital puts into an HSA account. How much additional a year would you recommend placing into an HSA, if any, if your goal of it at this point is purely an investment strategy.
I’d try to max it out if possible, but your goal shouldn’t be to spend it on anything but health care, ideally as late in life as possible. That’s the way to maximize the triple tax benefit.
There is a consensus that if you have a finite amount of money to put aside, you should first get the match on any retirement contributions, fully find the HSA next, then use any other available funds to further fund the retirement. The logic is that the HSA is a dual-purpose fund that can be used for medical tax free (at any age), or after age 65 can be used (taxable) as an IRA. The reality is that one of your largest post retirement expenses is likely to be medical expenses, which you would be able to pay with tax free dollars. My suggestion – fund as much as you can, up to the IRS limits, if possible.
I agree and max out my HSA on January 2nd each year.
I am a physician working for a hospital and my health insurance is a high deductible plan. I missed the enrolment period for the FSA offered though hospital plan. Can I use HSA for the year I missed enrolment for FSA?
Thank you for the great and instructive posts.
The FSA has nothing to do with an HSA. If you have a HDHP, you can fund an HSA. I don’t know that you can go back and make a contribution for a previous year you missed though.
Yes, you can spend HSA funds anytime on eligible medical expenses. You don’t need to be enrolled in an HDHP to spend or take a distribution. You only need to be in an HDHP to make contributions.
Of course, I wouldn’t take my word on it (doesn’t count for much if the IRS has a question). Here is the regulation on HSA distributions:
https://www.irs.gov/publications/p969/ar02.html#en_US_2013_publink1000204081
“If you are no longer an eligible individual, you can still receive tax-free distributions to pay or reimburse your qualified medical expenses.”
“Eligible individual” means one who is eligible to contribute into an HSA.
Now, if you are eligible to contribute to your HSA, it usually makes sense to do that versus contributing to an FSA where the funds must be spent by the end of the year.
I currently have an HSA through Aetna with VERY ERs on their limited number of funds. I would like to switch to a new HSA. I live in California which is one of the few states which does not exempt earnings from state taxes. I would like to invest in a high quality TIPS fund for my HSA in order to make the earnings tax free in California. Any thoughts on which HSA administrator would be the best for my circumstance?
Thanks!
You can easily do that through HSA Bank just by buying a TIPS ETF. I can’t recall if HSA Administrators offers the Vanguard TIPS fund as well, but I’d check into that if you don’t like HSA Bank for some reason.
HSA Bank experience: Recently set up and funded my account in a one-time deposit in order to get it invested and working for me as soon as possible. Then I sat by for two weeks as it just sat there because HSA Bank had “set up a new online system.” Called a handful of times to see when their system might be back online in order to initiate my Ameritrade account. Twice told it would be the next day, then the next time I called, I was told I had been told the previous time it would not be for another 1.5 weeks (which was untrue). I feel like some of my frustration could have been prevented if someone would have been honest and up front with me from the start. Customer service representatives certainly not helpful, or not well informed; unsure of which. Will certainly not recommend to colleagues or other solo practice physicians. There are lots of HSA services out there, I would recommend another which is better run and more reliable.
Thanks for sharing. Sorry to hear about your experience. I haven’t had any of those issues with HSA Bank. You might try Health Savings Administrators.
Hi, I’ve been researching HSA and stumbled upon your blog. So informative, thank you! I’m brand new to HSA. I’m looking for an HSA bank without the need for investment at this time. I was wondering if anyone has heard of Inland Bank or American Midwest Bank. These banks were mentioned from one of the comments on an online article I was reading. These banks offer free HSA. What about SelectAccount? Thanks in advance for any input!
I haven’t heard of those but wouldn’t be surprised if they offered a reasonable savings rate and low fees. A quick Google search ought to find the terms for those HSAs.
“Another nice thing about Health Savings Administrators is that they allow you to pay the yearly fee out of pocket, so it doesn’t have to come out of your HSA investments.”
Is that a tax deductible expense, like often admin fees are in a retirement plan?
Should be. It would be best as a business expense (Schedule C), but you could lump it onto Schedule A subject to the 2% floor.
Great information and suprisingly difficult to find online. This will be my fist year in a HDHP plan and I am excited at the opportunity of opening an HSA account. After reading the entire blog there seems to be several HSA administrators standing out: HSA Bank, Health Equity and Eli Lilly.
White Coat, I realize this is a bit of a moving target, but as we stand today, what company would you recommend for the lowest fee’s and best investment options? Thank you in advance–
I’m curious of this as well. I’m one of those that moved from a local bank with essentially no interest rate to HSA Bank. I keep the $5,000 in the bank and invest the rest in a TDA no-commission ETF, specifically VTI. I pay no fees, no commissions, no nothing aside from expense ratio on the ETF. I guess you could say my fee is having to leave $5,000 earning below inflation.
I decided against jumping ship for Eli Lilly when they showed up as the new game in town and clear winner. I’m glad I did, because they started changing their terms.
Another great source of information and an update on Eli Lilly, I would suggest you also check The Finance Buff’s posts on the topic. Here is the latest: https://thefinancebuff.com/elfcu-adds-monthly-fee.html
It would be worth adding Saturna to your list of possible choices.
I actually just starting investing the $5K this year. I figure I’m likely to do better than $3 a month on that over the long term.
I’m very happy with the HSA Bank/TD Ameritrade combination.