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Health Savings Accounts (HSA) and Mutual Funds

beebee
edited June 2013 in Fund Discussions
I was researching this option and come across a number of ways to invest HSA contributions into mutual funds.

Mutual funds which will act as HSA custodians for direct investors:
Geier Funds
Toreador Funds
Huntington Funds
Mirzam Funds
IMS Capital
Appleseed Fund
The Bruce Fund
Sparrow Capital
Roosevelt Multi-Cap Fund

Other HSA Mutual Fund options:
1.TD Ameritrade Brokerage Through hsabank.com/HSABank/Accountholders.aspx HSA Bank
-you can link an hsabank account to a TD Ameritrade brokerage, allowing for fee-free ETF trading.

2.Saturna Capitalsaturna.com/
-Brokerage based, no monthly or annual fee
-No fees if you invest in their mutual funds (AMANX, AMAGX, AMDWX, SSGFX, SSIFX, SCORX, SGHIX, STBFX, SBIFX)
-Commissions for self-directed trading ~ $14.95 per trade
-Inactive fee after 1 year ($12.50 or $25 for mutual fund/brokerage account)

3.alliantcreditunion.org/depositsinvestments/healthsavings/ Alliant Credit Union
-Pays 0.7% APY (updated 6/17/13) on balances above $100,
25 free checks, debit card, no fees. Join the PTA (local or national) to qualify for membership.
$5.95/month to invest anything over $1000 into Mutual Funds

4.healthsavingsaccount-hsa.com/hsadministratorsfundslist.htm Health Savings Administrators, are 15 Vanguard® Funds
-Debit Card alternative - not connected with mutual fund account
-Available through Resource Bank-There are no deposit fees, no per check fees and no fee to close the account.
-Pays 1% APR if monthly balance is above $1000
-FDIC insured
-Monthly maintenance fee - $2
-Account setup fee $ 20.00
-Annual administrative fee-single account $ 35.00
-Annual administrative fee-family account $ 60.00
-Administrative fees are payable direct in advance.
-Mutial Fund customers (no debit card)
- Custodial fee .00125 per quarter, deducted from account balance


Comments

  • #4 looks like a good plan, with a lot of fees though. If I read this right basic cost is in excess of $ 79.00 per year. Is your unused remainder carried over?

    My only option is a payroll deduction as signed up for at enrollment. My HSA account does not have any such options where I am employed. In fact if it is not used up in the plan year - that unused remainder is forfeited. If I left the job for other employment and had more funds in the HSA then medical bills they would also be forfeited. I try to figure savings close to actual needs.

    Gary
  • Reply to @Gary:
    Hi Gary,
    What you're describing sounds like a Flexible Saving Account, not an HSA. Unused contributions to an HSA can be carried over from year to year.
  • Thanks Bee, what I have is a health spending account - have reviewed your plan it is far different than what I have. Need to study more to see if I can possibly have an independent health savings plan in my name also.

    Thanks

    Gary
  • The user and all related content has been deleted.
  • Reply to @Maurice: HSAs survive. HDHPs are more questionable - I've seen the issue raised but no clear answers yet. (The problem IMHO is the min level of coverage required of all health plans, though current HDHPs already provide for preventive care w/o deductibles.)

    Worst case - you can continue using (spending from) your HSA.
  • msf
    edited June 2013
    Delete - dup (difficulties posting from travel site).
  • Most appropriate thread. I've been doing research myself. Sent email via websites to a few different providers. Only one to reply was HSA bank, confirming my read of their fees.

    HSA bank (#1 in your list) charges $2.50/mo for the bank account, unless the balance is above $3K. HSA bank charges $3/mo for any investing - it offers a list of funds or a TDAmeritrade account - unless the balance in the bank account is over $5K. From memory, the interest paid on a $5K account is 0.30% (less for lower amounts), but check to verify.

    Many banks use DEVINIR back end brokerage that provides a list of mutual funds you can invest in. HSA Bank is just one of those (if you choose their fund option instead of TDAmeritrade). It's usually a moderately small list of funds, but all the funds are load waived. The list varies from bank to bank, but generally only around the edges (many of the same funds in most lists). One of note is First Eagle Overseas A (load waived). You can think of these fund lists as similar to 401K offerings - load waived, limited selection.

    The Alliant list is significantly longer, though also limited. Of note there is that they offer a few Vanguard funds (#3).

    Got to dash - will fill in more details on these and others as time (and internet access) permits.


  • As promised here are some more details/suggestions:

    HSA Administrators - the information you have appears very dated. HSA Administrators used to work with Resource Bank, Virginia Beach, VA (see, e.g. this 2006 page from Arkansas BC/BS, that links HSA Administrators and Resource Bank of Virginia Beach. But that bank changed names in 2007 due to troubles. HSA Administrators did use Resource Bank into 2007 (here's their direct application from that year). But now they use HSA Bank as their custodian.

    Here are their current HSA fees, and current bank fees:
    -$10 per check fees and $25 to close the account.
    -Annual maintenance fee - $45 (payable with outside funds)
    -Account setup fee - none that I can find
    - Custodial fee 8 basis points per quarter for each fund owned (capped at $20K/fund) deducted from account balance
    - $2/ATM withdrawal or debit card use (no charge for use as charge card)
    - Tiered interest rates: 0.10% APY for up to $2500, 0.20% to $5K, 0.50% to $10K, and on up
    - 22 Vanguard funds

    My take on the fees is that unless one is really dedicated to some of the actively managed Vanguard funds listed, one would do better with an HSA Bank directly. For $66/year, one can invest 100% of the account, and get NTF Vanguard ETFs. For an account over $6K or so, one breaks even on expenses ($45 + 32 basis points with HSA Administrators vs. $66 at HSA Bank and TDAmeritrade).

    Sterling Bank - a slightly cheaper way to get access to TDAmeritrade, assuming one trades infrequently (they appear to have a $10/trade charge after your first two trades/year). Their fees and additional fees include:
    - Annual fee for TDAmeritrade: $16
    - Monthly HSA fee $2.50 (you pay both monthly and annual fee if you invest w/TDAmeritrade)
    - Closing fee: $20
    - Set up fee: $5 (if done online)
    - Various money access (debit card, check) fees, avoidable via "eCheck" - appears to be online bill payment/checks
    - Tiered interest rates: 0.10% - 0.20% up to $5K, 0.65% to $10K, and up.
    - Min bank balance required: Appears to be $20, according to the application form.

    Various banks that offer a fixed set of mutual funds:

    Optum Bank: Funds, and fees - including generally a $2K requirement in the bank before you can invest excess, and either $3/mo fee or a $5K bank balance to avoid fee

    Select Account: Funds and fees, including a $1K min in bank before investing, $1/mo account fee, $1.50/mo for investing option (whether from list of mutual funds or using Schwab). Generally no other fees. Note that to use their brokerage requires you to keep $10K in the bank account. Also, unless you pick a higher cost account fee option (e.g. $2.50/mo instead of $1/mo), you'll get charged an annual fee of $100 by Schwab. So the real cost of the brokerage option is an extra $18/year, plus the inability to use the first $10K in the HSA (must keep $10K in bank).

    Tower Bank: Funds, HSA fees (including $36/year to invest) and bank fees (no opening fee, $20 closing fee, minor money access fees).

    Health Equity: Funds, fees (from enrollment form - $3.95/mo unless $2500 in HSA bank account), and must keep $2K in bank account before investing. This provider appears to allow individuals to apply, but hard to find much other info.
  • edited November 2013
    There seems to be some confusion on this issue:

    Saturna Brokerage is clearly the best and cheapest HSA custodian for mutual fund investors because their brokerage division uses a Pershing backend (the same backend that used to be used by Vanguard Brokerage Services) and has an extensive list of NTF funds from BlackRock, Calamos, Franklin Templeton, Ivy, Leuthold, Mainstay, MFS, Morgan Stanley, Munder, Nuveen, Putnam, Robeco, VanEck, Alger, Allianz, American Century, Appleseed, Ariel, Aston, Baron, Buffalo, Century, Chase, Double Line, Dreyfus, DWS, Entrepreneur, Federated, Guinness Atkinson, Harbor, Harding Loevner, Intrepid, Invesco/Aim, JP Morgan, Loomis Sayles, Managers, Matthews, Motley Fool, Muhlenkam, Needham, Neuberger Berma, Parnassus, Pax World, Permanent, Perritt, Pimco, ProFunds, Royce, T. Rowe Price, TCW Galileo, Third Avenue, Tocqueville, USAA, Villere Balanced, and Wells Fargo Advantage.

    If you choose any of these fund families then your HSA can be fully invested without any fees at Saturna Brokerage so long as you place a free NTF buy+sell order once per year to avoid the $12.50 annual inactivity fee, which is itself already far cheaper than the fees and opportunity costs of every other HSA brokerage custodian (and you don't have to wait for the sell to clear either, so you can place a wash trade to both "sell $500" and "buy $500" of the same fund on the same day to generate activity without changing your portfolio for even a second).

    People seem to think that you need to buy the Amana or Sextant funds to avoid fees at Saturna, but that's not true because Saturna has both a direct mutual fund division (as they're also the management company for the Amana and Sextant fund families) and a separate brokerage division like Vanguard so that you can establish either kind of account within their HSA wrapper.
  • edited November 2013
    Also The Bruce Fund (BRUFX) is a fund that's available for direct purchase only (ie not through brokerages) and they charge the same custodial fee for HSAs as they do for IRAs (which is the $15/year that I believe all IRA custodians must pay to the IRS even though most are willing to subsidize it). So if you're interested in their management (which has an excellent track record and is the only microcap balanced fund I'm aware of), their HSA is a relatively good value and they even told me I could pay the custodial fee with outside funds if I wanted.

    So unless other custodians start lowering their fees, I personally wouldn't consider any except either Saturna Brokerage or The Bruce Fund. Although given my ringing endorsement I feel I should disclose that I do not have a position in the Bruce Fund, but that might change if bond rates keep rising and if Obamacare somehow allows me to become HSA contribution eligible again.

    EDIT: fixed ticker to BRUFX
  • beebee
    edited November 2013
    Reply to @BannedfromBogleheads: Thanks BFB, I was in the process of setting up an account before year's end.

    Also, For those that are eligible to fund a HSA account funding is tax deductible. Qualified withdrawals from the HSA are tax free. Also, a one time trustee to trustee transfer can be made from a traditional IRA to a HSA which, once in the HSA account, can be withdrawn tax free when used for qualified medical costs.

    kiplinger.com/article/insurance/T027-C001-S003-rules-for-ira-to-hsa-rollovers.html
  • Just spoke with a Bruce fund representative...using the Bruce fund requires mail in requests for withdrawals and deposits...no online transactions. There is no "debit card" option for making medical payments as part of your account with Bruce making it a little more complicated paying for medical expenses. Other HSAs offer an "HSA checking" account and a debit card. Finally, HSA funds are always fully invested with Bruce...no cash position.
  • Reply to @BannedfromBogleheads: BFB, your BRUSX fund should be BRUFX.
  • edited November 2013
    Reply to @bee:

    Neither BRUFX nor Saturna Brokerage are good custodians for using your HSA to pay medical expenses directly as neither offer debit card or checking features, but that's not a problem if you're making the most of your HSA because it's not to your advantage to be making direct payments from an HSA anyway because reimbursing yourself for medical expenses is also a qualified withdrawal and there is no time limit for doing this; The longer you wait to withdraw the more your investments compound tax free, so:

    1. I strongly feel that HSA owners should make it their highest priority to take no distributions until retirement or beyond because HSAs are the best tax shelter around: no tax going in, no tax on returns, and no tax going out...so if you can't afford to pay your medical bills with taxable savings then raid your Roth if you have to but LEAVE THAT HSA ALONE.

    2. I'm also of the opinion that, even when interest rates are high, cash portfolio allocations should NOT be located in tax shelters as is sometimes advocated with the argument that one can withdraw from riskier, more tax-efficient investments in taxable accounts and rebalance in the tax shelter. If you know you'll always be able to withdraw from the riskier investments without running out then that means you're not at risk and you don't need a cash allocation, but if you do in fact need a cash allocation then it needs to be where you can spend it without any dubious predictions about the ability to rebalance. Additionally, (not to mention that cash yields are currently extremely low) to minimize tax bill you need to consider which investments maximize all future cash flows with compounding and that's not necessarily going to be the investments which have lower tax efficiency in any single isolated year.

    P.S. Yeah BRUFX doesn't allow online transactions, but IMO that's exactly why they have a liquidity edge vs other mutual funds. If you don't need daily liquidity then why would you invest in funds which pay a premium in the market to get it?
  • beebee
    edited November 2013
    Reply to @BannedfromBogleheads:

    #1. Aren't HSA contributions tax deductible going in?

    Also, why would it be more beneficial to "raid your Roth" to pay medical expenses? A spouse can roll over an inherited HSA tax free, but a non-spouse (kids) have to take a full distribution and this distribution is considered income. Conversely, kids can spread out the distributions of an inherited Roth IRA over their lifetime tax free.

    If you have kids as beneficairies the Roth account seem like the one not to raid.
  • edited November 2013
    That's a good point about inheritance treatment...I hadn't considered that because I'm young and don't currently have any heirs, but my point was simply that debit or checking features should not generally be desirable for HSAs because, during one's lifetime, HSAs are basically just a kind of super IRA with which one can minimize taxes by avoiding withdrawals and contributing to in lieu of taxable accounts or other kinds of IRAs.

    But you are right that when comparing withdrawals from a Roth IRAs vs HSAs specifically, the tax penalty incurred by the owner is equal between the two because there is no tax on withdrawal from either and the size of the tax shelter is equally reduced in both cases which leaves only secondary considerations like the tax burden on heirs to differentiate. So although it is better tax-wise for the owner to:
    -contribute to an HSA instead of any other kind of IRA or any taxable account
    -withdraw from taxable accounts instead of any kind of HSA or IRA
    -withdraw from an HSA or Roth IRA instead of a Traditional IRA
    , withdrawing from an HSA instead of a Roth IRA is worse for heirs even though it is neither better nor worse for the owner.

    So upon consideration of secondary factors, HSAs are not universally superior to IRAs as I previously thought, but I think the point still remains that debit or checking features to aid in frequent withdrawals would not be a valuable for most prudent HSA usage just as they are not for IRAs.
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