If you have a high-deductible health plan (generally one with a deductible of $2400 or more for your family per year), you are eligible for a Health Savings Account (HSA). This allows your family to contribute $6250 ($6450 in 2013) per year pre-tax to the account. It grows tax-free and, if spent on health care, can be withdrawn tax-free now or in retirement. Since I recently transitioned to a high-deductible health plan, I am now eligible for an HSA. Many people don’t realize that, unlike a 401K, you don’t have to use the HSA provider your employer has chosen. You can use any provider you like.
There are plenty of choices out there for an HSA provider. Since I plan to use the account primarily as a Stealth IRA, I am most interested in low fees and good investing options. I’ll probably also use it occasionally to actually pay for health expenses, so ease of use and customer service is also an important consideration. These are the companies I considered using.
Alliant Credit Union
Alliant offers 1.25% on any balance of $100 or more. They provide free checks and a debit card and basically have no fees at all. They also have an investing option, but I’m not impressed with it. It’s hard to get good information on it, but it seems to be composed of what I consider lower tier mutual funds, such as Oppenheimer, Putnam, AIM etc. There is also a monthly $5.95 fee for the investing account. They do require you to keep at least $1000 in the savings account portion, but you can invest anything above and beyond that. As a credit union, you do have to jump through some hoops to join, but it’s no big deal and at most will cost you $10. If the investing options were better, this would be a great choice for me.
Stanford Federal Credit Union
Stanford offers 0.20% on their HSA accounts, BUT, if you commit to banking with them (a $500 direct deposit into a separate checking account each month, which I suppose you could use to fund the HSA), you can use their “premier health savings account” which offers a rate of 1.50%. Most fees are waived with the premier checking option. The downside? There doesn’t seem to be any investing option at all. At most it’ll cost you $15 a year to join the Friends of Palo Alto Library, which makes you eligible for the credit union.
HSA Bank
This is actually my partnership’s official provider. HSA Bank offers a graduated rate from 0.09% to 0.89% (0.49% for $5-10K) and has a pretty good investment option through TD Ameritrade. You have to keep $5K in the savings account or you pay a $3 monthly fee. On $5K, that works out to an expense ratio of 0.72%, which is pretty significant. The only other significant fee is the brokerage commission of $9.99 per ETF trade, but almost all of my preferred Vanguard ETFs are on the commission-free trade list. So even if I decide to completely invest my funds, I’m only looking at a cost of $36 per year.
HSA Administrators
I actually met the owner of HSA Administrators at a Bogleheads conference, and he seemed to be a great guy. They are very up-front about fees, and use Vanguard funds for their investment options (and in fact Vanguard links tl them on their site). They brag about the fact that you don’t have to keep any money in a low interest checking account, but they do charge a fee of $45 a year to maintain the account, which is $9 more than you’d pay at HSA Bank to do the same thing. Both charge a minimal fee for checks, but offer debit card transactions (if you choose credit instead of putting in your PIN) for free. Actually, I just realized while researching this that HSA Administrators actually uses HSA Bank for their “debit card account.” So you’re still subject to the $5000 minimum in the account or else you get the $3 a month fee. (Some places on the web state the minimum is $3000, but HSA Bank confirmed to me it was $5000.)
HSA Administrators also charges another fee, 0.32% of the first $20K in any mutual fund per year, which is a maximum of $64 per fund per year. The Vanguard funds offered are reasonable, and mostly offered as Admiral funds with expense ratios similar to the ETFs you can get through TD Ameritrade at HSA Bank. They offer the Prime Money Market Fund too, which used to be a great option for your cash, back when money market funds didn’t suck. I think HSA Bank has really taken the wind out of their sails with their TD Ameritrade option offering free Vanguard ETF trades, and so have a hard time recommending HSA Administrators over HSA Bank.
Fidelity HSA
Fidelity is also in the HSA game, offering their usual assortment of brokerage options and mutual funds. Non-Fidelity ETFs trade for $7.95 and there is a $48 per year HSA fee (waived if you have $250K invested at Fidelity.) Check fees are also minimal just like with HSA Bank and HSA Administrators. One downside is that your cash in the sweep account is only making 0.07%, so Fidelity isn’t a great option if you want to keep any significant chunk of the HSA in cash. But if you already have a lot of money with Fidelity, and plan to completely invest your HSA, this may be your best option.
Wells Fargo
Wells Fargo offers rates of 0.05% to 0.60% on their HSA. They require you to keep $2000 in the checking account, and then allow you to invest the rest, but only into their proprietary mutual funds, which pretty much suck due to their high expenses.
Adirondack Trust
Adirondack offers a rate of 2.96% [Update 1/13 - now 1%]with no minimum, but they do charge a fee of $25 to enroll and $4 a month. Unfortunately, there is no investment option.
Lake Michigan Credit Union
Lake Michigan is currently offering rates of 1.49% to 2.08% with no significant fees. They say there are additional investment options, but they don’t list them on the website. I called them up and the only option is to buy CDs. You can join the credit union by making a $5 donation to a group working on ALS (yes, Lou Gehrig’s Disease.)
Bank of the Sierra
Bank of the Sierra offers rates of 1.0% to 1.75% without residency restrictions. There is a $20 set-up fee and a $3 a month fee if you don’t maintain $3K in the account. There are no decent investing options anyone on the phone could tell me about.
Other institutions I already have accounts with, including Vanguard, Schwab, USAA, Ally Bank, and my local credit union, don’t offer HSAs. So in conclusion, I think my partnership made a great choice in picking HSA Bank and that’s where I’ll be opening up my HSA. Remember if you’re an employee you should have your employer send your pay directly to the HSA provider to save on payroll taxes on that money. A partner or independent contractor need not worry about that as he pays his payroll taxes independently.
Fidelity does not currently offer HSA to individuals but they probably will in 2013.
I wouldn’t have guessed that based on their website. http://planreview.fidelity.com/health_savings_account/home.htm
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 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.)
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
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. :)
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
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.