Today’s post is aimed at providing my millionaire readers with a great HSA investment option.
Back in 2012 I began using a high-deductible healthcare plan (HDHP) for our family. Because HDHP plans have higher deductibles, their premiums are considerably lower than more comprehensive healthcare plans. With everyone in the family enjoying good health, the last thing we wanted to do was to overspend on our healthcare insurance premiums. In order to help pay for their potentially higher expenses (due to higher deductibles), a HDHP plan allows for the establishment of a health savings account (HSA). HSAs are great for three reasons:
- HSA contributions are tax-deductible.
- The HSA’s investment growth is tax-deferred.
- HSA distributions (when used for medical expenses) are tax-free. At age 65, HSA distributions for non-medical expenses are treated as regular income (just like a traditional IRA).
Because HSA accounts offer three levels of tax savings (going in, during growth, and going out), the Mad Fientist considers them the Ultimate Retirement Account. Naturally, my wife and I wanted to take advantage of this Triple Crown of tax avoidance, so we began looking for a good HSA option. I learned that Alliant Credit Union had a low-cost HSA plan, so in 2012 I opened an account at Alliant. At the time, the account was paying something like 2% a year in its HSA savings account. Because the plan wasn’t a high-cost fee trap, the Alliant HSA was a solid plan for individuals who actually used their HSA funds to pay for their medical expenses.
However, since we were in good health and seldom visited the doctor, we did not need an HSA account to pay our medical expenses. Instead, we needed an HSA that offered a cost-effective investment platform. Our HSA problem: where could we find a solid HSA plan with a low-cost investment platform? I began scouring the ‘Net, but I was not impressed with any HSA options available to the general public. Finally, I came across this post (thanks Harry!) where I learned of a great HSA option at Elements Financial Credit Union (EFCU).
In order to join the Elements Financial Credit Union (formerly Eli Lilly Credit Union), we would first have to become eligible to join. Next up, tons of paperwork and lots of fees, right? Wrong! All we had to do to get the ball rolling was to join Tru Direction, a not-for-profit organization dedicated to promoting financial literacy. The cost to join Tru Direction was $5! After filling out an online application and paying my 500 pennies, we were then eligible to join Elements Financial. Next, I filled out the Elements’ online application to join, transferred $5 to a checking account and $5 to a savings account, and just like that we became members of EFCU.
In June of 2014 I opened an HSA at Elements and rolled $10,530 over from Alliant to our new account. Over the next three years (2014-2016), we also funded our Elements HSA account to the max. By January of 2016 we had almost $29,000 sitting in a cash position. Great, but it was time to start investing our HSA money.
Our HSA Solution
The HSA plan at Elements offered access to the TD Ameritrade investment platform. (If that doesn’t impress you, you’re in good company because I knew nothing about TDA.) As I looked around their website I noticed a link for “Commission-free ETFs” that grabbed my attention. To my surprise, I saw that they offered Vanguard ETFs at $0 per trade. Oh happy day! Next, I learned that we could invest in the Vanguard Total Stock Market ETF (VTI) with an expense ratio of 4 bips (.04%)!!
In January of 2016, we front-loaded our HSA account with our 2016 contribution of $5,062. A few days later we sent $26,450 from Elements to TD Ameritrade where we invested all of the money in Vanguard’s VTI ETF. There was a fee of $24 to wire the money from Elements to TDA, but it was well worth the cost to gain access to such a quality investment option. (The fee is currently $25 to wire money. Advice: don’t roll money monthly when there are pesky fees involved. Instead, build up your funds and then roll them over annually or quarterly.)
Thanks to a strong stock market, our HSA funds have grown from $26,450 to $35,350. That represents a growth of almost $9k over the last 20 months. Here’s a breakdown of our HSA money:
We have decided to keep at least $2,500 in our HSA savings account for two reasons. First, we can use that money to help with any medical expenses when we’re Stateside. Second, there is a $4 a month fee on HSA balances below $2,500. Uh, no way, Jose!
Okay, are you ready to open an HSA account at Elements Financial? If so, I’ve made a step-by-step guide to how we joined.
Step 1: Join Tru Direction
Click here to join Tru Direction.
Step 2: Open an Account at Elements Financial
Next, click here to complete the Elements Financial application. You’ll need to open a Member Savings account to establish membership ($5 deposit). You can also open a Basic Checking account with a puny $5 deposit. (Psst…hey travel hackers, need a free checking account to pay your credit card expenses?) When asked about you eligibility to join, you’ll select Tru Direction as your membership organization. Tru Direction is an eligible organization; see below:
Step 3: Open an HSA at Elements Financial
Elements HSA Application can be found here. After opening your HSA account, you’ll access your HSA account here. Elements HSA platform is administered by Pilot HSA. For whatever reason, I’ve had some difficulty logging into this page from time to time. The good news is that I always got prompt, helpful advice when I called the 1-800 number. (Advice: be sure to write down your login information for the Pilot HSA page to minimize login problems.) Here’s what the Pilot HSA login looks like:
Step 4: Send HSA Funds to TD Ameritrade
First, click here to open a TD Ameritrade account. The beauty of TDA is the ability to access their commission-free, low-cost ETF offerings. For a tight-wad investor such as myself, this is as good as it gets for HSA investments.
To send funds to TDA, you’ll need to login into your Pilot HSA account first. The HSA Welcoming Kit (p. 9) has all the details regarding how to send funds to TDA. Remember, that it cost $25 to send money from Elements to TDA, so do all you can to keep this fee in check. Here’s what it cost us to change over to our Elements HSA:
Okay, let me know if this Elements HSA option helps you. If you have any questions, fire away and I’ll try to pry my lazy derriere out the hammock, hopefully without dropping mi chela. Finally, if you haven’t already opened an account at Personal Capital, please consider doing so via the affiliate link below. You’ll get a “command central” to track your finances, investments, and net worth while I’ll get a monetary peck on the check. Thanks in advance for the love!
Your FIRE’d frugalista,
|Health Savings Account: We use Elements Financial to access commission-free, low-cost Vanguard ETFs at TD Ameritrade.