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.]
First, love the site and book. Finished reading it a couple months ago and now recommend it to all my co-residents. I’ve read this current post in its entirety. Few questions.
1) For 2014, I was on three separate health plans. One while I was a fourth year med student, another short term bridge insurance with high deductible, and finally a third under my wife’s plan now that I’m an intern in a new state. Not all of the plans were considered high deductible (the 5 months on short term bridge was). Am I able to fully contribute for 2014 to an HSA account or will I only be able to contribute a portion of the maximum given that I wasn’t high deductible for the entire year.
2) Regardless your answer to above, I will be contributing for 2015 as a first time HSA participant. Reading all your posts above it seems like there’s been a lot of discussion as to that best way to go. If I’m reading it correctly and you were in my position, you would:
-Max out HSA at HSA Bank (as opposed to other companies cited in above posts)
-Put all the money into investments and not keep the minimum 5K in savings, essentially sucking up the $36 administrative fee (I think that’s a change compared to what you said originally).
-Invest everything in TD Ameritrade’s “Vanguard Total Stock Market Index Fund ETF Shares” (VTI)
Did I miss anything or would you do something different? I’m looking to take care of this in the next week or so and just looking for the final recs from a seasoned pro 🙂
Thanks again and congrats on the proceeds from all your hard work at WCI.
1) It’ll be a little complicated. If you end the year in a HDHP that you were in by DEcember 1st, you can make a full HSA contribution. However, if you don’t, your contribution gets prorated by the number of months you were in the HDHP.
2) Do you have a HDHP for 2015? If not, you can’t do an HSA for 2015. But yes, that’s what I’m doing with my HSA. If you plan to spend your HSA money any time soon, you shouldn’t invest it into stocks. And yes, that is a change from leaving $5K at HSA Bank to minimize fees. Nothing special about TSM. A more diversified approach may be completely appropriate, but obviously be a little more complicated. But given no commissions on Vanguard ETFs you could do some TISM and TBM too if you wanted.
Unfortunately, I was not in a HDHP on December 1st (just started reading about HSA accounts this month). I was only in the high deductible category for 5 months during my short term interim insurance period. I suppose the best bet is to call HSA Bank directly and tell them the situation and they should be able to tell me how much I can contribute. Unless you have another recommendation of whom to contact.
As for 2015, I just switched my enrollment a few days ago to a higher deductible plan that hopefully should qualify (deductible is now 4000). However, the “out of pocket network” is 13200, which appears to be above the 12900 I read about online. Any idea how strict they are in regards to this out of pocket network clause? If they’re strict with it, my health care offerings wouldn’t let me qualify (despite switching to their highest deductible plan).
And yes, I’m only 27 so hopefully this money will not be used anytime soon.
Thanks.
You can calculate it. It sounds like $6550*5/12 to me, but you were a little vague about how many months you qualified for an HDHP. I’d also have to look up the deadline for contributing to an HSA. It might have been year end, so you might just be out of luck for 2014.
The plan must be qualified as a high deductible plan. Most that are are labeled as such (HSA plan, or high deductible plan etc). Just ask the company- is this a qualified high deductible plan?
As a former stockbrocker, investment specialiest and financial planner in both the commission based and fee based worlds who has been out of that business for a long time, I will say this to many of you:
Stop quibbling about the setup and maintenance fees and go ahead and set one up. I found out about these yesterday, found this blog sight last night, searched the no-load fund companies with no luck, went to both Bank of America and Wells Fargo. I selected Wells Fargo because that guy knew how to set it up so I could make 2014 deductible contributions as well as 2015. (This is Jan 21, 2015). That’s $6,000 (one for me, one for my wife) I just deducted from my 2014 income. I just saved another $2,000 in taxes.
This is going to be like IRA’s in the early ’80s. Nobody cared besides the banks until the mutual fund companies figured out that there was a lot of accumulated money to be rolled over after they had been around awhile.
With Obamacare (excuse me, the ACA) almost every self-employed person qualifies, plus all those small business employing less than 50 people. After the average account balance starts hitting $15 – 25,000, the Vanguards, Fidelitys, and T Rowe Prices will be all over this and you can transfer your money then via rollover.
But get it started now.
Just my .02.
Agree that any HSA is better than no HSA. You know you don’t get an HSA for you and one for your wife, right? It’s just one.
I agree with you on the similarities between IRAs and the evolution of HSAs. We are seeing a lot of transfers from the banks to investment HSAs. I was disappointed that you didn’t stumble upon the link to HealthSavings when you visited the Vanguard site. We offer a selection of Vanguard funds and don’t require that you keep a balance in a checking account prior to investing.
You learned about them yesterday? And now you are telling us all to run and gobble them up? Welcome to the party, former “stockbrocker” “specialiest”. You may want to check the limits on individual vs family. Fees do matter to most of us too.
Thanks for your input. Last year was my first year with a HDHP and my first year contributing to an HSA.
I can’t tell you how displeased I’ve been thus far with the process (on account of my HR department and HSA Bank)
– took forever to get HR to contribute $3300 in one lump sum as opposed to distributing it over a year’s worth of paychecks
– HR forgot to stop contributing $3300 so now I’ve overcontributed for 2014 and will face the excise tax
– HR can’t figure out how to increase my contribution to $3350 for 2015
– HR has some weird setup where they continue to withhold $3300 in pretax money with each paycheck and then offsets it by giving me $3300 in aftertax money, looks like I’ll be owing more in taxes than anticipated by the end of the year
– And now HSA bank has decided to make random transfers over to my TD Ameritrade account so once again I am under the $5000 limit and am subject to $5.50/month in fees ($2.50 to service the account, $3 to be able to invest)
All small things in the grand scheme but what an unbelievable amount of ineptitude displayed by both parties in running this account. Almost made me wonder if I should just close everything and switch back to a regular health insurance plan but since everyone here seems to be so enthusiastic about the usage of the HSA as a Stealth IRA, I guess I’ll suck up the service fees for another year and see how it goes.
Sorry to hear about all that. It does get more complicated when you have an employer involved. I luckily don’t have to deal with that. The downside, of course, is that I have to pay payroll taxes on my HSA contributions, and you probably don’t.
Darren,
It sounds like your HR could use some training. Sorry.
My employer pays more than 25% of the HSA max as a wellness incentive.
It obviously varies a lot.
Thanks, at what point would you guys say move on?
I can’t get HSA Bank to respond to me via email or via phone (I just get put on hold for 30+ minutes at a time) about these erroneous transfers. Seriously, what kind of bank just randomly transfers money out of people’s accounts?!
Transfer to another HSA provider? Just shut it down? I don’t anticipate needing the money for medical purposes, should I just cash out and allocate more into my taxable investing account? Thanks!
Whether you change or not, you’re going to have to work with HSA Bank to get this mess straightened out. My second favorite is Health Savings Administrators. You might try there.
Agree that an HSA is better than no HSA too. But I don’t think it’s trivial in trying to find the ideal HSA administrator, especially as new ones come and others change their terms. You’ll find after spending more than a day on this blog and others like it that many people posting about HSA administrators are comparing what they already have with what might be out there today. And this discussion leads to newcomers being able to quickly reference this discussion to make their own choices. I’m surprised you went with Wells Fargo, but to each their own.
Regarding your ability to contribute for 2014, you had to have a HDHP in place at some point in 2014, right?
Sorry, meant to reply to Jim Adams.
I’m planning to enroll in a HSA with my future employer. They use HSAbank. I’ve been given a list of 20+ Vanguard No Load Mutual Funds ranging from low to high risk. Can divide investment across 4 funds. Do most take high risk selections?
I don’t know what most do. I’m 100% stock in my HSA because I don’t plan to use it for a long time and that was the simplest solution and it’s only a tiny chunk of my entire portfolio.
Regarding you comments about employees making sure to have your employer send the money directly to avoid payroll taxes, does this still apply if you would max out SS tax anyway?
You never max out Medicare of course. But yes, if you’re going to max out the SS tax, no savings there.
Great post and great website, White Coat Investor! Thank you for all of your help. I am setting up an HSA now. Do you still feel HSA Bank is the best choice? And I’ve gone to the HSA Bank website which links to the TD Ameritrade website, but they don’t list the investment options available …. is there a link to see which Vanguard ETF’s are offered from HSA Bank/TD Ameritrade? Thank you for your help and your time! Jim
You can buy any Vanguard ETF at TD Ameritrade. It’s a regular brokerage. Plus you get over 100 ETFs without a commission:
https://research.tdameritrade.com/grid/public/etfs/commissionfree/commissionfree.asp
That list includes 6 Vanguard ETFs. They’ve got a bunch of commission-free funds too. I don’t recall if I’m paying a commission to buy Vanguard TSM there or not, but I only do it once a year, so even if I do pay, it’s not a big deal.
And do you still feel HSA Bank is the best choice? Thank you!
I’m still using them and haven’t heard of anything better. HSA Administrators also very good. If all you want is a savings account, there are some better choices too.
Has anyone had any experience with USBank? I actually had an HSA account with them that was funded by my hospital during residency. Now, I’m looking for my own personal HDHP and wondering if I should stick with USBank or switch to one of the other ones that I’m hearing more about (e.g. HSA Bank). Thanks.
Great advice here. I’m new to being offered the HSA. The options are very dismal considering I will start with about $70 from my first paycheck deduction. We don’t get bulk options. I’m going to lose 5% to fees every month while I try to ramp up to the $5k threshold where the fees go away over the next 3 years. Quite discouraging starting out.
Question on the contribution limit– is it per plan year of the hsa or per tax year?
While my HDHP starts 7/1, I’m currently in an FSA that needs to fully expire before i can contribute to an HSA, and that isn’t until 10/15.
So, can I fund all 3350 for 2015 in the last 2 months of the year? or should I just set up my semi-monthly paycheck (24 a yr) to pull 3350/24/2= 69 and change in to it from the start?
whhoops, ignore that last /2.
Why are you losing 5% to fees? You know you don’t have to use your employer’s recommended HSA, right?
I didn’t realize that HSA plan years were different than tax years, so I don’t know the answer to that one.
Yes, you can fund the whole thing in the last 2 months. I fund my entire HSA on Jan 2nd. Be aware, however, if this is being done with automatic paycheck withdrawals, there is an additional benefit- no payroll taxes on the contribution.
Thanks for the reply.
My employer told us to find our own and offered no guidance at all! That’s how I ended up here, trying to research where to set it up. I’m choosing HSAbank after much research and a lot of it from this thread.
The 5% figure I came up with is from the $2.50 fee per month. If i only fund it $69 a paycheck, and lose 2.50 of it, that hurts. But that math was wrong, I will be funding it $139.50 a paycheck to give me 139.50*24 = 3348 a year put away, just about the max. so its most like 1.5%. I am not given the option to lump insert (through payroll), just a standard contribution per check.
The first year will be pretty bad fee wise, but once the balance ramps up, it should provide a good savings benefit and i’m in it for the long haul.
You can lump sum contribute, just not through payroll, if you have $5K to put in.
Man, my math is awful. It should be 139
Do you have an opinion on SelectAccount? Seems like they have better interest rates while still offering good investment options and low fees
Never heard of them, but it sounds like you’re doing the evaluation right.
I don’t see where they list the mutual fund options (and their expense ratios) that are required for accounts with less than 10k. I also don’t understand how much of the account can be invested in the brokerage account if you do have $10,001. Just a dollar or most of the 10k?
For Select Account, with a > $10K balance, all but $1000 can be moved to the self directed brokerage account.
Question: If I wish to rollover my HSA from one provider (HSA1) to another (HSA2), and I have part or all of my funds in one or more investments offered through HSA1, how do I do the rollover of the non-cash investment portion of HSA1 to HSA2?
Must I first liquidate all my HSA1 shares to its cash account? What if HSA2 offers some or all of the same investment funds in which my HSA1 investments were in? Can I keep those shares intact/unsold during the rollover?
Thank you!
I think you have to liquidate it. Not a big deal since there are no tax consequences, but possibly some commissions and of course bid/ask spreads.
Thanks for the reply. Follow-up question:
If I understand correctly, the differences between a Transfer versus Rollover, is that a Transfer is done directly between HSA1 and HSA2 (often with an associated “transfer fee” assessed by HSA1 and/or HSA2), whereas with a Rollover, I withdraw the money myself from HSA1 (in my case to my checking account setup for my electronic contributions and withdrawals), then write a check to HSA2 to fund the HSA there, making sure to check the box on HSA2’s application designating it as a rollover and NOT as a contribution for the current tax year.
I have read the fine print @ HSA1 (Fifth Third Bank HSA, in my case). In its fee schedule, it has a $25 “Account Closure Fee”, and a $25 “Outgoing Rollover Fee”. It states that “Fee is charged and deducted at the time the account is closed/rolled over to another institution. Any account with no transactional activity within 180 days of account opening will automatically be closed. Any account maintaining a $0.00 balance for 16 consecutive months will automatically be closed.
The fee will be the lesser of $25.00 or the remaining balance in your account at time of closure/rollover request.
If I fund HSA2 via Rollover, could I possibly avoid the Closure Fee fees by not officially closing the account but leaving $0 balance in it?
And, regarding their $25 “Outgoing Rollover Fee”, how would they know that I am doing a rollover if I would be withdrawing all the funds into my checking account? Perhaps what they are referring to is actually an outgoing TRANSFER fee?
Thank you again!
Yes, they probably mean a transfer fee. I’d call and ask when they assess the $25 fee, but I’d plan on paying it.
I’ve been following this thread for about the past year because I knew I would get to this point where I am today of needing to select an HSA provider.
In my situation I think I feel most comfortable just leaving it in cash for the first year and maybe even the first two years because I really need to determine the amount I am going to use an medical expenses which of course is not the plan (the plan is to use it as an investment vehicle) but in my situation that is just something that is going to have to be determined.
So I am looking for a fee free provider, and looking at this thread it seems to be that there are two good options:
https://www.bmoharris.com/main/personal/checking-accounts/hsa#page=page-2
and
https://www.selectaccount.com/products/hsa/
and I believe that SelectAccount is better because there is no “closure fee” (unlike BMO Harris) which is what I might encounter in 1-2 years when it comes time for me to ” invest” rather than keep it in cash, and that is assuming I don’t like their investment options at that time (which may unnecessary if they have something like Vanguard total stock market index fund).
Just wanted to share this with anyone in a similar situation, and of course to confirm you guys don’t mention something to the contrary before I pull the trigger. Thanks as always
If you’re going to leave it in cash, I’d find whoever is paying the highest rate on cash. My quick Google search shows Lake Michigan Credit Union is at the top of the heap with 2%. Why not go there?
Per this:
https://www.selectaccount.com/wp-content/uploads/F9650-Individual-HSA-Pricing-Sheet.pdf
the no-fee option at Select Account pays 0%.
That makes sense, glad I asked, I was considering only the closure fee.
I had a terrible time with HSAdministrators HSA plan, so I went with Well’s fargo. Their website was down for 1 month when I was trying to start an account and service over the phone was very poor.
I didnt want to trust them with my money based on that experience.
So I cautiously went with Well’s fargo HSA- they require a minimum of $1000 available in cash, and everything over that can be invested. For balance less than $5000, there is a $3/mth fee.
I looked at their mutual funds, and invested 100% of my money in WFAF INDEX FUND ADM
Expense ratio is 0.25%, but that is ok – I do my banking through WF and I do not plan to use this money till I retire.
Did you look at HSA Bank? Better investing options than that fund, similar fees.
I haven’t yet. I look at it today and see if i want to roll over the HSA
Been scanning through this article and thread looking for some insight into what to do with my HSA. I started one quite a few years back (2005 or so) when I had a HDHP. After a few years I qualified for insurance through my union, and have been covered ever since. With only $3600 in my HSA, I haven’t made any contributions since it was started, as my union insurance is low deductible. As I understand it, I don’t qualify to make contributions to to my HSA with my current insurance.
A few years ago Chase started charging a monthly fee, and then recently stopped handing HSA accounts all together. HSA Bank took them over, continuing to charge a fee. I feel like I’ve got this cash sitting in limbo, slowly dwindling away with fees and inflation.
My questions are:
1) What do you recommend I do with such a small sum and no ability to add to it?
2) Should I move it to a no fee provider with essentially no interest? (i.e. my Credit Union, or online bank)
3) Should I maybe consider an investing option? Or is the sum too low to make it worth the fees? If it IS worth it, who offers the most cost effective investment solution?
Appreciate any insight!
1) Either spend it on health care or move it somewhere (HSA Bank let’s you go to TD Ameritrade) and invest it.
2) If you’re not going to invest it, and it’ll take you a while to spend it, then sure. But I think the HSA Bank interest will pay the fees, no?
3) Sure. TD AMEritrade. They have an agreement with HSA Bank.
Thank you for this article. Based on this, we set up with HSA bank in October. Though in the long run it’ll work out, I had a terrible experience getting set up. Just anyone wanting to set up that does your own HR (we’re small medical group, I do most this stuff for all of us), it took 2 mo to get someone to get back to me with enrollment forms. I got forms sent to me with minimal to no discussion/explanation. It was like I was waiting in line to buy groceries, not like they were trying to encourage me to use their service.
I got a login to the employer website with no orientation or guide on how to use it.
And to run my first set of contributions I had to go back and forth with the “business@” email address (different people each time) to figure out how to do everything.
Then I made a mistake and last month deductions were run twice and it’s 3 weeks to get my money back. I realize it’s my mistake, but it’s frustrating that I’ve kind of been left on my own to get his done and figure it all out.
I am generally very efficient at this stuff, in this last year have set up group health, disability, term life, 401k, and now this for my group. I’ve really not had this issue with any of the other companies.
Sorry to hear about the lousy experience. To be sure, I haven’t done this for a business, just for myself, and found that pretty straightforward. There are certainly other companies out there doing this for businesses, and I wouldn’t be surprised if their customer service were better. But I’m not sure the price would be so low and the ability to invest would be so good. Maybe you get what you pay for in that regard.
No apologies needed, thank you for the review article. I think in the long run (cost wise) HSAbank is still the best option. I was just surprised by how little up front help there was and was so busy with other things I didn’t notice until all this money was being withdrawn unexpectedly (my own mistake with how I set up contributions and I’ll be getting a check back now that it’s sorted out). I left the comment for anyone setting this up for their businesses to make sure they get help (if you can!) with setting it up at the beginning.
I’ve had an HSA with HSA Bank, established the first year they became available. I’ve found their customer service and website below par, but I deal with them once a year: I make my full contribution Jan. 2, then transfer it immediately to TDA. In the past, I was able to schedule my contribution in advance. It looks as if their most recent website redesign will not allow me to schedule a contribution for 2016 until we are in the new year. One more minor inconvenience, I guess, which pales in comparison to some of the mistakes described above. I am in the process of transferring most of my retirement accounts over to Fidelity, and now that they have their HSA program set up and running, I won’t hesitate to include my HSA account in the transfer.
I only interact with them once a year too. Haven’t had an issue so far.
Do you have more info on Fidelity’s HSA? Last i looked it was corporate only. ie, an HR rep for a company could establish one for payroll, but there was no individual option.
I believe you are correct. I initially just did a cursory search inside Fidelity and found several hits, but I didn’t read the fine print. I have a call in to my rep to confirm that no individual HSA is currently available, and will post back if that is incorrect. Good catch!
I am also using my HSA account as a stealth IRA. I have no need for cash in the HSA account, want to maximize the amount I can invest, and have a 20+ year horizon before retirement.
I’ve debated between Select Account and HSA Bank. I see an advantage of Select Account over HSA Bank but wanted to see if others would share the same analysis…
1. With Select Account, I only need to keep $1,000 in cash and total yearly fees would be $30 ($12 maintenance fee for ThriftSaver option and $18 investment fee). However, with HSA Bank, if I only kept $1,000 in cash, yearly fees would be $66. With a balance over $5,000, HSA Bank will waive all fees but would prevent an additional $4,000 from being invested on the brokerage side. So, the $30/year (or actually $34/year if I factor in the $4 of lost interest with HSA Bank on the extra $4,000 in cash) total yearly fee with Select Account allows me to invest an additional $4,000 on the investment side of things. My annualized ROI on the extra $4,000 invested with Select Account/Schwab would have to only exceed 0.85% to break even with the Select Account fee and lost interest on the $4K. I see any annualized ROI above 0.85% as a clear advantage of Select Account over HSA Bank. I would think that exceeding 0.85% on an annualized basis over 20+ years would be a given if invested using disciplined and generally accepted investment strategies.
2. Select Account allows you to trade using a Charles Schwab account and HSA Bank allows you to use a TD Ameritrade account. Both are self-directed. So, for investment options and expense ratios, this is a wash. Caveat: Schwab account can be opened once the investment funds are over $10K which is easily achievable after 2 years of contributions.
So, assuming I have at least $10K on the investment side, I have no need for a cash balance in my HSA, and I have a long term horizon, I believe Select Account is the better choice over HSA Bank. I would appreciate any feedback on this analysis. Many Thanks!
I read your facts and arrive at the opposite conclusion. I see the following advantages of HSA Bank:
1) Can invest from the time you make your first contribution. No waiting for $10K.
2) Vanguard ETFs are free at TD Ameritrade, but not Schwab. (Trust me, I know as I use both- TD in my HSA and Schwab in my 401(k)) Add at least $8 a year to your fees, more if you use any kind of complex asset allocation.
3) Select requires $30 in fees. You can totally avoid those at HSA Bank if you really want to.
4) $66 on $5K is just over a 1% return. Not much of a trade off to just invest the whole thing. Meanwhile, at Select, you have to pay $30 even if you leave them $1000.
5) Neither of them pays any kind of decent interest rates. If you really want your HSA in cash, might as well go elsewhere. These options are both for people who want to invest their HSA, and for the person who wants to do that, I think HSA Bank is the better deal.
Thank you for your quick reply and thoughts.
Although I do favor Vanguard ETFs, I found that Schwab offers commission free trades on many of its in-house ETFs that track very closely with their Vanguard counterparts and have similar (and slightly lower) expense ratios. For my purposes, I would consider this a wash (although I know this is debatable due to the increase bid-ask spreads and lower volumes with Schwab ETFs compared to Vanguard ETFs).
For my analysis, I have assumed that I am starting with over a $10K balance so there would be no waiting in the scenario I presented.
I did error in my analysis in that I didn’t take into account that I could have a cash balance with HSA Bank at near $0 (by leaving just enough cash to pay the monthly fees). This would allow for close to an additional $1,000 to be invested than compared to the Select Account.
I now do see HSA Bank as the better option because the compounded ROI from the additional close to $1,000 invested will likely outpace the slightly higher HSA Bank fees in the long run.
Thanks again for your time!
The Schwab ETFs aren’t bad, but I do prefer the Vanguard ones.
I transferred from a local bank’s HSA to HSA Bank mainly because of its superior investment options. I would echo some of the previous negative comments regarding their customer service, as I had some delays in setting up the account and receiving initial documents.
Sometimes I feel like their customer service reps could use some additional training.
WCI, I have a question: Since you are leaving $0 in the cash account and investing 100% via TD Ameritrade, how are the monthly Account Maintenance Fee of $2.50 and Investment Fee of $3.00 paid? Does HSA Bank liquidate $5.50/month out of your TD Ameritrade account?
They will liquidate it out of the TD Ameritrade account, first the cash then by selling shares, but I’ve left $30-50 at HSA Bank each year to avoid the issue.
Has anyone heard of optum bank? This is the first time Ive been able to use an HSA. Im not really sure about how I want to use the account, although I think I will eventually be headed in the direction of using it as a stealth IRA (FYI I know almost nothing with regards to investing). Any advice would be helpful.
I prefer HSA Bank/TD Ameritrade due to the slightly better investing options. Here are Optum’s:
https://www.optumbank.com/individuals-families/how-to-invest-with-hsas/mutual-funds.html
It’s not terrible. There are three admiral share Vanguard index funds there. You could do far worse. The $3 a month fee is similar to HSA Bank although they require you to keep $2000 in there, not sure if that means in cash or just in the total account.
My family will be moving to a HDHP on March 1. I may or may not remain with that plan for the entire year depending on whether or not my wife starts working (she works in education and they typically have superior insurance). I would like to contribute to an HSA while we are on the HDHP, but wanted to know if there is any penalty to contributing to an HSA if you don’t keep your HDHP for the year?
Yes. It’s not so much a penalty as an overcontribution. Details here:
https://www.irs.gov/publications/p969/ar02.html#en_US_2015_publink1000204045
It’s all about the “last month rule”.
Yes.
HSA bank has terrible customer service. They changed to a debit card with a chip, that our medical supplier for insulin pump supplies is unable to process so every time I need to pay a bill it’s a huge problem. I call customer service and it takes forever to sit through their stock repertoire of soothing platitudes before anyone actually addresses the problem, and then about four out of five times the answer is “we can’t do anything about that.” It’s always someone else’s problem. They put holds on my money and keep it tied up so it’s even harder to access in order to purchase insulin. I have NEVER had a good experience with them and will be contacting my employer’s Benefits office first thing Monday morning to close this account and make other arrangements. I just now wasted another hour arguing unsuccessfully with them about making my money available so I can purchase vital medical supplies.
If the debit card doesn’t work, why not just put it on your credit card and then reimburse yourself from the HSA?
The main benefit of HSA Bank as near as I can tell isn’t on the spending side, it’s on the investing side. I’ve never actually spent any money from mine.
My company uses optumbank for their HSA. You previously thought it wasn’t such a bad place to hold money, but thought HSA Bank was superior. I inquired about using HSA bank instead and was told I could do that, but would not be able to make pre-tax payroll contributions to HSA Bank. I would have to fund it post-tax. When you make a post-tax contribution to an HSA, are you able to get back all the taxes paid on that money (SS, medicare, local)? Am I better off sticking with payroll deductions to optumbank, vs post-tax contributions to HSA Bank?
The payroll deductions will save you payroll taxes. You would save the income taxes either way. You can just use Optum and do a rollover to HSA bank once a year, no big deal.
You can claim the post tax contributions on your 1040, but that only covers fed. Fico adds up to 7.65% and you will not get that back if you go in on your own after the fact. So, it’s worth it to use your work’s provider.
You can move like WCI suggets once a year.
Looks like you have VFIAX as an option in optum. I’d probably just dump it all there. It’s not VTI but it’s an agressive fund with the lowest ER .05 around. In my opinion, it’s not worth the hassel of managing 2 accounts and moving money around to save literally a few bucks.
If you have a 5 basis point broadly diversified index fund in it, I agree I’d probably just use that. You can roll it to HSA Bank or similar if you ever leave that employer.