HSA Strategy

Health Savings Account

A Health Savings Account (HSA) allows contributions on a pre-tax basis, for medical expenses. An added benefit is that you can choose to invest the contributions and the growth is tax free, if used for medical expenses. You are required to have a high-deductible health plan (HDHP), in order to qualify to contribute to a HSA. Most providers offer a savings account, with a linked debit card that can be used for medical expenses and a optional linked brokerage account.

There are contribution limits for a single filer or family and they are generally increase each year. See links below for a detailed breakdown for your own situation.

A few years ago, there were limited choices for HSA providers. Most had monthly maintenance fees and transfer fees to linked brokerage accounts. In early 2019 Lively and soon after, Fidelity both reduced and/or eliminated most fees. This made it cost effective to invest in a diversified portfolio of low cost index funds at almost no cost/commission.

We should all evaluate our own needs. If you plan on using the funds in your HSA in the short term, it makes sense to keep the funds in the default savings account. However, the most effective strategy is to invest the funds and pay out of pocket in the short term. Scan and file the receipts. These can be used in future years to reimburse yourself for past years medical expenses. Using the investment strategy, contributions will hopefully grow tax free and can be used at a later date. Tax laws and regulations may change in future. It is vital to reevaluate this strategy yearly and adjust accordingly.

The links below should help in determining whether an HSA is the right choice for you and which provider to choose, base on your own criteria.

We switched from Elements Financial in 2017/18, as our primary criteria was to reduce the monthly fees. In early 2018 Lively was offering the best solution for our needs. The "HSA rollover" between these providers was well executed and follows the same process as a 401k/IRA rollover. Pay attention to the rules and guidelines. Both providers customer service was exceptional during the process.

Switching to Lively, creating a linked Ameritrade account, transferring the funds and getting them invested was painless. In subsequent years making the contributions and investing them is as simple as creating a calendar reminder to execute on the task. Fortunately, market performance in the past years has been above average and the contributions have continued to grow, tax free.

Tracking Medical Expenses.

Develop a system to track and file medical receipts immediately. We choose to scan them and store in a digital folder and maintain a spreadsheet of each expense/receipt.

Portfolio Allocation and Risk

Current rules and regulations do not have a clear limit on when the HSA funds have to be used to offset prior years expense. For now we choose to invest in a diversified long term portfolio and keep track of expenses. We use Bogleheads forum and wiki regularly for updates in rules and regulations to determine a investment strategy.