It’s open enrollment season, and now
There are two ways to treat your HSA – as a spender or an investor. As a spender, you contribute to the HSA, grab the tax-deduction, and then treat it like a piggy bank and spend it down whenever you have a qualified healthcare expense. You don’t have that annoying “use-it-or-lose-it” feature of Flexible Spending Accounts (FSA), and most offer FDIC-insurance on your cash.
As an investor, you are trying to maximize the tax benefits of HSAs but keeping the balance as large as possible and buying long-term (but more volatile) investments like stocks. If you have the financial means, you would max out the contribution limits ($3,600 for individual and $7,200 for family coverage in 2021) and then pay for your healthcare expenses out-of-pocket instead of withdrawing from the HSA. (The advanced trick: keep a “forever” digital PDF copy of all your healthcare expenses. You can still withdraw the amounts of all those expenses tax-free at any time in the future, even decades later.)
Morningstar has a very detailed review in their
Fidelity and Lively HSA for spenders. Both have the least fees and a safe place for your cash. Others HSAs have maintenance fees, minimum balance requirements, and more “annoyance” fees.
- No minimum balances.
- No maintenance fees.
- No paper statement fees.
- No account closing fee.
- FDIC-insured cash balances with tiny APYs in today’s environment.
Fidelity and Lively HSA for investors. Both feature a low-cost way to invest your contributions for long-term growth:
- No minimum balance required in spending account in order to invest.
- Offers access to all core asset classes.
- Offers free self-directed access to ETFs, individual stocks, bonds, and mutual funds.
- Offers “guided portfolios” for hands-off automated investing.
If you want access to a cheap all-in-one mutual fund, Fidelity offers the institutional shares of their
A simple Vanguard ETF portfolio might be 50% US Stocks (VTI), 30% International Stocks (VXUS), 20% US Bonds (BND). The total weighted expense ratio of such a portfolio would be less than 0.05% annually and fully customizable for the DIY investor. Both accounts essentially cost nothing above the expense ratio of the cheapest ETFs you can find – you really can’t ask for more than that!
(How do they make money? Your employer has to pay a fee to HSA providers. It’s still much cheaper for them than your old full-price health insurance premium, of course.)
Bottom line. Both
(Disclosures: I am not an affiliate of Fidelity (although I would if they had such a program). I am an affiliate of Lively and may receive a commission if you open an account through my link. Thanks for your support of this site.)
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