Help with HSA fund choice

[Kcinnick]

My investing experience is limited to picking no load Index funds with the lowest expense ratio and I need some help narrowing my HSA fund choices. None of them were nice enough to say "I mirror the S&P 500" or any other index.

My plans are long term investments (I am 27) and I like the HSA as a vehicle since not only do I not pay Federal Income Taxes, I don't pay FICA taxes on the funds invested.

This account is first and foremost for immediate health care needs, and am going to keep the deductible X 2 in the .0000000083% interest bearing portion of the account. Rate may be a little higher, but it doesn't seem right when my checking account pays me $50 a month in interest and my HSA pays me pennies a month.

The funds available are:

Dreyfus Cash Management Plus - Investor Shares Preservation of Capital DCVXX
Calvert Income A CFICX
Calvert Short Duration Income A CSDAX
Templeton Global Bond A TPINX
Goldman Sachs Short Duration Govt A GSSDX
Dreyfus Appreciation DGAGX
Dreyfus Premier Strategic Value A DAGVX
Mutual Discovery A TEDIX
Ivy Asset Strategy A WASAX
MFS Research International A MRSAX
Fidelity Advisor Emerging Markets A FAMKX
Fidelity Advisor High Income Advantage T FAHYX
Fidelity Advisor Small Cap A FSCDX
Gabelli Asset Aaa GABAX
Keeley Small Cap Value A KSCVX
Marsico International Opportunities MIOFX
MFS Aggressive Growth Allocation A MAAGX
American Century Heritage A ATHAX
American Century Strat Alloc A ACVAX
T. Rowe Price Real Estate Advisor PAREX


I do have the opportunity to change to another HSA custodian, but if there is something good here then I don't desire to. Other custodian available is US Bank.


Thanks,


Nick

 

[easysurfer]

I use Health Savings Admnistrator as my HSA.

Health Savings Administrators » Health Savings Accounts – HSA Administrators

They offer first dollar investing into a host of Vanguard funds to choose from.

 

[Kcinnick]

I have to stick to either my current custodian choice or usbank to get the 100% match up to 50% of the deductible from my employer. I also get to avoid FICA taxes having the funds taken out of my pay check.

 

[ziggy29]

I have to stick to either my current custodian choice or usbank to get the 100% match up to 50% of the deductible from my employer. I also get to avoid FICA taxes having the funds taken out of my pay check.

Yeah, that's the thing. You can only avoid paying the FICA and Medicare taxes on an HSA contribution if it comes directly out of a paycheck as part of a Section 125-eligible cafeteria benefits plan payroll deduction. You *could* choose a better HSA with better investment options or lower fees outside of the HSA custodian your employer uses, but you would get hit with an extra 7.65% tax hit and possibly lose some employer match into the HSA depending on plan rules. (Plus, my employer pays all the HSA custodian fees while we're still employed. They're using Chase and we have a few JP Morgan funds to choose from with loads waived. Some of them aren't real bad, even though the expense ratios are a tad high)

So really, unless one has simply *horrible* investment options in an HSA, it's probably best to stay put and use the default Megacorp HSA custodian through payroll deduction.

[Edit to add: My strategy is to keep three years of max out of pocket expenses (currently $12,000) in cash, and then probably use a balanced fund or a stock fund/bond fund mix with the rest.]

 

[angelbaby]

This account is first and foremost for immediate health care needs, and am going to keep the deductible X 2 in the .0000000083% interest bearing portion of the account. Rate may be a little higher, but it doesn't seem right when my checking account pays me $50 a month in interest and my HSA pays me pennies a month.

Hey! Join up with my credit union (Alliant Credit Union of Chicago, IL) and sign-up for their HSA savings account. Current rates for HSAs is 2.5% for balances of $100 or more. Balances of less than $100 pay 0%. There's no monthly maintenance fee and no fee to write checks or any of that kind of stuff. Your first book of checks is free and you get a fee-free debit card. To qualify for membership, all you have to do is make a $10 donation to the Orphan Foundation of America.

They're like part of seven or eight ATM networks (PLUS, STAR, CO-OP and Interlink, AllPoint and MoneyPass immediately come to mind) and you get fee-free access to over 80,000 ATMs worldwide. I can even make deposits and withdrawals from US Bank and Bank of the West ATMs.

Way better than any commercial bank's HSA and where else can you find a 2.5% tax-free return that's FDIC insured and virtually risk-free as well?

Alright, I through sound like an advertisement. But really, join up dude. When I did, it practically changed my life.

 

[angelbaby]

I have to stick to either my current custodian choice or usbank to get the 100% match up to 50% of the deductible from my employer. I also get to avoid FICA taxes having the funds taken out of my pay check.

Wow. Didn't read that until after I posted. What a bummer.

 

[Kcinnick]

All of my fees are paid for also, just the expense ratios are around 1.4% with no mention of waived loads, many of them are no load.

 

[angelbaby]

Just had this idea. What's really to prevent you from doing an HSA transfer from one account to another once you get the match added? You can have more than one HSA, just like you can have more than one IRA, so long as you don't contribute above the yearly maximum combined on all of the accounts.

 

[Kcinnick]

Just had this idea. What's really to prevent you from doing an HSA transfer from one account to another once you get the match added? You can have more than one HSA, just like you can have more than one IRA, so long as you don't contribute above the yearly maximum combined on all of the accounts.

Simplicity...

Really just looking to see if any of the funds listed are acceptable investments.

 

[Kcinnick]

Took some digging, but loads are waived, but not the minimum hold time fees. I don't think that will be a problem.

 

[DblDoc]

What is the ER for the GSSDX fund? It looks like a reasonable short duration, high quality bond fund. I'm biased towards them in my HSA as 1) I need the tax deferred space and 2) don't want a lot of volatility.

DD

 

[Kcinnick]

I picked 6 of the funds, they vary in type and er, from .39 to 1.4 (ouch). I am going to put $50 in each a month, and let the rest of my contributions stay in the savings portion of the account. I will see how they do and probably reduce it to one or two funds within the year. I might switch to usbank at open enrollment time, they have fidelity funds with the loads waived.

 

[hcho3528]

Without sounding to condescending, I am looking for some advice in regards to my HSA as well. I have been paying in for 2 years now and have approximately 20 more years before I retire. With Obamacare coming, is it pointless for me to have this account? Also, can the government absorb the money I have invested in this particular fund if I still have it when Obamacare takes full effect? I am looking for advice on whether it is worth continuing investing in this fund, when I can use the contributions toward my ROTH, Deferred Comp, or my childs 527. Part of me wants to hold out until the next election to see if Obamacare survives. Any advice?

 

[REWahoo]

Without sounding to condescending...

Wow. I can only imagine what you might have said had you not restrained yourself.

But to your question, I think only the high level conspiracy theorists envision a situation where the govt. confiscates our HSA accounts - along with our 401k's, guns and pickup trucks. I'm continuing to contribute to my HSA as a way to defer/shelter from taxation.

 

[ziggy29]

Without sounding to condescending, I am looking for some advice in regards to my HSA as well. I have been paying in for 2 years now and have approximately 20 more years before I retire. With Obamacare coming, is it pointless for me to have this account?

It is possible that HSAs will be discontinued or become less advantageous in the future. But like the Roth IRA, I'm pretty sure existing account balances will be given the treatment they have now even if new contributions are no longer allowed.

 

[hcho3528]

@REWahoo: hahahah trust me, that was the restrained version Thanks for the help, perhaps it was borderline government conspiracy theoryish...I just want to make the right investments for my family and future.


@Ziggy when you say "less advantageous" can you expand on that? how so?

Does anyone know if you can roll over the HSA to a ROTH tax deferred?

 

[REWahoo]

@Ziggy when you say "less advantageous" can you expand on that? how so?

I'm not Ziggy, but I suspect he was referring to this, for example:

The provision most immediately affecting individuals is the change in the definition of reimbursable expenses for flexible spending accounts and health savings accounts, and the increased penalty for nonqualified disbursements from HSAs...

Beginning in 2011, only prescribed drugs and insulin will be reimbursable through flexible spending accounts or health savings accounts. As a result, over-the-counter drugs such as aspirin or medical-related items such as bandages will no longer be qualified expenses for HSA or FSA purposes. In addition, the penalty for nonqualified distributions from health savings accounts increases from 10 to 20 percent in 2011.

Does anyone know if you can roll over the HSA to a ROTH tax deferred?

Not under the current tax laws.

 

[ziggy29]

As REW mentioned -- some provisions for not using the money according to the intent of the law have had penalties increased and such. But the main point is that I don't see the *primary* functions -- tax-free withdrawals for qualified medical expenses -- being taken away for any balances already in an account, even if the HSA concept is discontinued.

Does anyone know if you can roll over the HSA to a ROTH tax deferred?

Not currently. If HSAs ever *were* eliminated, it would not shock me to see an option offered for people to roll HSA balances into *traditional* IRAs, and then they could follow whatever Roth conversion rules were in place at the time. But that's speculation and there is no such law in the books or even in the 'sausage making' process that I'm aware of.

 

[seabourne]

Correct me if I'm wrong (will start a HSA account in January), but you wouldn't WANT to put it into a Roth account - you would pay takes on the removal. Maybe into a tradIRA, where you still wouldn't pay on withdrawal, but my reading of the HSA is that it's better than either - no taxes on deposit (including FICA if it's employer withheld) and the possibility of no taxes on withdrawal (medical expense) with a worst case scenario 10% penalty and income taxes, making it no worse than a traditional IRA. Is there something in there that I'm missing?

As for safety, I'm on the page with Ha that it would be too damaging to take away stored money if they stop offering them, and for small financial gain - at worst they would roll them into a traditional IRA, since the withdrawal limits are closest to HSA non-medical rules.

 

[ziggy29]

... with a worst case scenario 10% penalty and income taxes, making it no worse than a traditional IRA. Is there something in there that I'm missing?

The 10% penalty for non-medical early withdrawals of HSA funds is going to be 20% starting in 2011.