HSA and payroll deductions :roll:

[TheAbacus]

Briefly, is it better to accept an employer offered HSA provider which is suboptimal, instead of going for an independent HSA provider and lose the small payroll deduction benefit?

Some details of the employer offered HSA provider:

1. Tiny local bank (3 branches)

2. Scant to no information available online on their "blog" (had to speak to a bank employee)

3. $3 monthly fee (no waive options)

4. Debit card

5. 1% APY

6. No investment options

 

I was thinking of going with HSA Bank but my employer cannot send a payroll deduction to them. There is no employer contribution for this HSA anyway.

What would you fellow White Coat Investors do?

[DMFA]

If no investment options, then I prob wouldn't. You would gain whatever your payroll taxes are (7.65% of your contribution at the most, prob less since you prob earn over approx $120k which is the SS cap and would hence be 1.45%) and lose anything you'd gain from your investments.

If you're a high earner and unless you plan on spending your HSA every year, which I would say is prob not its best utilization, you're probably better off forgoing the payroll tax deduction and choosing one with an investment option.

However if your earnings are under the SS cap, effective payroll tax rate is closer to the 7.65% max, you might consider that to be your non-compound annual "gain" for you to place elsewhere. Keep in mind that's at most $516.38/yr, so significant but not massive. If you're at $127k or more, your payroll tax savings are just 1.45% for Medicare, so imo not worth it.

[spiritrider]

You can have the best of both worlds. Make your contributions by payroll deduction to avoid FICA and move the contributions to a better HSA custodian.

You can do as many trustee -> trustee transfers, but custodians can and many do charge a transfer fee (commonly $25).

You can also do a cost free indirect rollover once every 12 months. The 1% isn't a bad rate waiting for the transfer and is lower than even the measly 1.45% Medicare FICA if you are saving even if over the Social Security max wage base (2017 = $127,200).

[TheAbacus]

@DMFA - I appreciate your analysis. 1.45% isn't a massive hit (just below $100/yr). More importantly, I would like consistent and easy access to my accounts which the employer's HSA provider does not provide.

@spiritrider - I like the idea, but the net benefit at the end of a year is around $70. It's a lot of hassle though! Additionally, since the "average return" of the market, well exceeds this amount every year ($70 + 1% APY), it might not be worth it.

 

Thank you both for your detailed responses!  

[STM]

Jumping in here, because I'm in a similar situation. Here's what I'm thinking, please let me know if this is a good idea:

1) Make the maximum HSA contribution to local bank through payroll deduction.

2) One day later, do a (free) indirect rollover to HSA Bank.

3) Do the same thing each year.

This should save me FICA taxes while still allowing me to invest the money, rather than having it sit in a saving account at .5%. Am I missing anything here?

[The White Coat Investor]

Exactly. Just do rollovers periodically. But be aware the HSA Bank/TD Ameritrade option becomes a little less attractive in a month when you can no longer buy Vanguard ETFs commission-free at TDA.

[spiritrider]

A small clarification.

Like with IRAs, it is one HSA rollover per 12 month period. It is not one rollover per calendar year.

[hightower]

The White Coat Investor wrote:

Exactly. Just do rollovers periodically. But be aware the HSA Bank/TD Ameritrade option becomes a little less attractive in a month when you can no longer buy Vanguard ETFs commission-free at TDA.

Click to expand...

Wait what?  TD Ameritrade is getting rid of commission free ETF's??  That's a big problem for me since I have a self-directed brokerage account option in my 401k through TD and my portfolio consists of all ETFs.

Do you think I should sell them all and buy the corresponding admiral shares now?

 

***Nevermind, I found a thread on bogleheads about this.  I'm not sure what (if anything), I'm going to do about this yet.