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HSA account & fees
Old 09-16-2015, 10:52 AM   #1
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HSA account & fees

Hi there,

I've been reading a ton to try to set myself up for FIRE in 5 years. One of the investments I planned to prioritize was my company's HSA (Health Savings Account), because contributions are tax-free, as are withdrawals. So I planned to max out my contribution to my HSA each year while I'm still working, invest that money through the HSA offerings, and then sit on those investments until I need the money for health-care expenses in older age.

However, I recently found out that once I leave my job, I will be responsible for the account maintenance fees, which are $5.50 per month if the HSA is an investment account. IMO, that's quite a high fee ($90/year) considering that the balance of this account will only be about $17,000.

I'm sure others have dealt with this question too... What is the the best strategy is for taking advantage of the HSA's tax benefits but not paying too much in fees? The options I can think of are:

A) For the next 5 years (while I'm working), contribute the max amount to my HSA and invest it in something like a total stock market fund. Then when I retire, move the money into a cash account (where it won't gain any interest). Spend that money as I need to on health-related costs over the next few years, so that I'm spending it tax-free but also not leaving a ton of money sitting in a place where it can't grow.

B) For the next 5 years, contribute the max amount to my HSA, invest it in a total stock market fund, and go ahead and withdraw funds as I incur any health related costs along the way.

C) Max out my contribution to the HSA, invest funds, leave them invested for the long-term and pay the $5.50/month.

D) Don't contribute to HSA, and instead, invest that money myself. (But then I don't get the tax-free contributions + withdrawals benefit.)

E) Something else?

Thank you!
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Old 09-16-2015, 11:03 AM   #2
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I was in a similar situation as you a few years ago. What I did was contribute the maximum to my HSA while I was working. I didn't touch the funds then.

When I retired (last year), I moved the HSA to another institution with lower fees (my credit union). Now that I am retired, I continue to charge all health care expenses to a credit card where I get 2% cash back. Periodically (have only done it twice when I needed cash), I reimburse myself from funds from my HSA. I count this as part of my retirement withdrawal rate.
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Old 09-16-2015, 11:03 AM   #3
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You don't need to leave your HSA account in the institution your employer uses after you leave work. The HSA account belongs to you, not your employer.
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Old 09-16-2015, 11:12 AM   #4
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Ah-ha! I just checked, and my bank (Wells Fargo) offers no-fee HSAs as long as the balance is over $5K on the last day of the month each month. So yes, I'll start the HSA with my current employer and then roll it to Wells Fargo when I leave. Thank you!

-Tracy
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Old 09-16-2015, 12:13 PM   #5
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Originally Posted by lem1955 View Post
You don't need to leave your HSA account in the institution your employer uses after you leave work. The HSA account belongs to you, not your employer.
I was going to mention the same thing, but you beat me to it .
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Old 09-16-2015, 12:49 PM   #6
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FWIW, here is a great guidebook on HSAs. All 220 pages.

https://www.messa.org/portals/0/pdf/hsa_guidebook.pdf
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Old 09-16-2015, 01:13 PM   #7
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You don't need to leave your HSA account in the institution your employer uses after you leave work. The HSA account belongs to you, not your employer.
The HSA provider my employer chose was a royal PITA - demanding paid receipts for every medical expense. Getting a "paid receipt" is not as easy as it sounds.

When I retired, I went with a friendlier and cheaper alternative.
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Old 09-16-2015, 02:38 PM   #8
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Your present tax bracket definitely is a consideration in this decision along with what tax bracket you will be in when you retire. You will find cheaper alternatives to transfer your HSA to when you retire. Fees are a part of HSA's however. I keep the $1000 minimum and invest the rest. Yes, this costs me $2.50 a month, but the income received from my securities is well more than the fees. I could avoid the fees with a higher balance. I also try to minimize trading transactions. By far though the immediate 31% tax break I get by the annual funding of HSA makes the fees worth it.


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Old 09-16-2015, 11:13 PM   #9
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The HSA provider my employer chose was a royal PITA - demanding paid receipts for every medical expense. Getting a "paid receipt" is not as easy as it sounds.

When I retired, I went with a friendlier and cheaper alternative.
Your former employer will be depositing your Medicare reimbursement funds with that same old HSA, btw.

Who is your cheaper alternative, if I may ask?

omni
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Old 09-17-2015, 07:14 AM   #10
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Your former employer will be depositing your Medicare reimbursement funds with that same old HSA, btw.
Perhaps so, but it is $1800 a year, free money.

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Who is your cheaper alternative, if I may ask?

omni
Initially I went with Patelco CU. Now I'm with Health Savings Administrators using Vanguard funds
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