Fidelity Hsa Investments: Bogleheads Guide To Getting Started

If you're looking to invest your health savings account (HSA) with Fidelity, you're in good company. Many Bogleheads have chosen to do the same, and they have lots of advice to share.

First, you'll want to decide whether to go with a self-directed HSA or a managed HSA, like Fidelity's HSA Go. The latter comes with a 0.35% annual fee for accounts over $25,000, so many Bogleheads opt for the self-directed route.

Next, you'll want to choose your investments. You can invest in anything with a self-directed HSA, but some funds are recommended over others. The Fidelity HSA Funds to Consider are said to allow you to invest for free, while other funds are charged based on your account balance. Under $10,000: $0; $10,000–$49,999: $3 per month; $50,000 and above: 0.35% per year.

Some Bogleheads opt for total stock market index funds, like FSKAS or FZROX, which has a zero expense ratio. Others choose to invest in exchange-traded funds (ETFs), like VTI or ITOT, for their tax efficiency.

Finally, you'll want to decide whether to use a debit card linked to your HSA to pay for medical expenses. Some Bogleheads prefer to charge expenses to a cashback credit card and reimburse themselves from their HSA. Others like the convenience of the debit card, but warn that you should be careful not to withdraw more than you need from your HSA, as this can lead to tax reporting consequences.

The benefits of using a Health Savings Account (HSA)

A Health Savings Account (HSA) is a personal savings account that can be used to pay for qualifying medical expenses. It offers a range of benefits, including:

Tax advantages

HSAs offer a potential triple tax advantage. Contributions to an HSA are made with pre-tax dollars, which means you don't pay income tax on the money you put into the account. Contributions are also exempt from federal income taxes and, in most states, state income taxes. Withdrawals for qualified health care expenses are also federal tax-free.

Flexibility

An HSA gives you the flexibility to meet your short-term and long-term financial goals. While you can use it to pay for day-to-day health care expenses, it's designed to help you save for future health care costs, including during retirement when you're likely to have more medical expenses and less income.

Longevity

Funds in an HSA don't expire and will remain in your account forever, even after you retire. Any unused funds roll over from year to year and are available anytime you need them.

Investment opportunities

You can choose to invest the funds in your HSA to make your money work harder for you. With the option to invest in a wide range of mutual funds and other types of assets, you can potentially grow your balance over time.

Portability

HSAs are portable, so you can take your account with you if you change jobs, switch health care plans, or retire.

Benefiting loved ones

You can use your HSA to pay for qualified medical expenses for your spouse, dependent children, or anyone you could have claimed as a dependent on your taxes, even if you have single coverage.

Investment options for a Fidelity HSA

Fidelity offers a wide range of investment options for Health Savings Accounts (HSAs), including various funds and individual stocks. Here are some key points to consider when choosing investments for your Fidelity HSA:

• Fees and Expenses: Fidelity HSA accounts do not charge fees based on account balances unless you opt for their robo-advisory service, Fidelity Go, which provides discretionary investment management for a fee. The fees for Fidelity Go are $0 for under $25,000 and 0.35% per year for balances of $25,000 and above.
• Investment Choices: With a Fidelity HSA, you have access to a diverse range of investment options, including stocks, bonds, mutual funds, exchange-traded funds (ETFs), and more. You can choose from a variety of Fidelity funds, such as the "Fidelity HSA Funds to Consider" list, or explore other options like the Avantis small-cap value ETF (AVUV).
• Tax Efficiency: When considering investment choices, be mindful of tax implications, especially if you live in a state like California or New Jersey, which taxes HSA earnings. In such cases, consider tax-efficient options like VTI or ITOT, or Treasury funds if they fit your investment needs.
• Fractional Shares: Fidelity allows you to purchase fractional shares of certain ETFs, such as VTI, providing more flexibility in your investment choices.
• Transfer Options: If you have an existing HSA with another provider and want to transfer it to Fidelity, you may have the option to do an in-kind transfer, where your investments are moved without needing to liquidate them first. However, this depends on the policies of your current HSA provider. Some providers, like HealthEquity, may require you to liquidate your investments before transferring.
• Robo-Advisory Service: If you prefer a more hands-off approach, Fidelity Go offers discretionary investment management for a fee. This service constructs and manages a portfolio for you based on your goals and risk tolerance.
• Customer Service: Fidelity is known for its reliable customer service, which can be helpful when you have questions or need assistance with your HSA investments.
• Two-Factor Authentication: For added security, consider enabling two-factor authentication on your Fidelity account to protect your sensitive information and investments.
• Investment Horizon: Your investment horizon, or how long you plan to invest, is an important consideration. If you intend to use your HSA funds for short-term medical expenses, a more conservative investment approach may be suitable. On the other hand, if you view your HSA as a long-term retirement fund, you may opt for more aggressive investments.
• Risk Tolerance: Assess your risk tolerance and choose investments that align with your comfort level. If you prefer a more conservative approach, consider Treasury funds or certificates of deposit (CDs). If you're comfortable with more risk, you can explore a wider range of investment options.
• Automatic Investments: If you want to automate your HSA contributions and investments, consider choosing investment options that are compatible with this feature. Mutual funds, for example, allow for automatic investments, ensuring your contributions are put to work immediately.

Remember to consider your financial goals, risk tolerance, and time horizon when selecting investments for your Fidelity HSA. Diversification is also key to building a robust investment portfolio. Consult with a financial advisor if you need more personalized advice.

HSA at Fidelity vs. HSA Go at Fidelity

The HSA at Fidelity is a health savings account that offers a tax-advantaged way to save and pay for qualified medical expenses. The account has no fees or minimum balance requirements, and it offers a wide range of investment options, including individual stocks, mutual funds, and other securities. The account also has the potential for investment growth, which can be beneficial for long-term savings. One of the advantages of the HSA at Fidelity is that it allows individuals to invest any amount, providing flexibility for those who may not be able to contribute large sums at once. Additionally, the HSA at Fidelity can be easily transferred from another provider, making it convenient for those who wish to consolidate their health savings accounts.

On the other hand, the HSA Go at Fidelity is a managed account service provided by Fidelity, where a team of professionals makes investment decisions on behalf of the account holder. This option is designed for long-term investment goals of three years or more. While there is no minimum amount required to open a Fidelity Go account, there is a $10 balance requirement for Fidelity to start investing the funds according to the chosen investment strategy. The HSA Go at Fidelity offers two types of accounts: the self-directed HSA, which allows individuals to choose and manage their own investments, and the Fidelity Go HSA, where Fidelity invests the funds on the individual's behalf. The self-directed HSA provides quick access to funds through Fidelity Bill Pay and a debit card, making it convenient for short-term qualified medical expenses.

When comparing the two, the HSA at Fidelity offers more flexibility in terms of investment options and account management. It is suitable for those who prefer to have control over their investments and are comfortable making their own investment decisions. On the other hand, the HSA Go at Fidelity is a good choice for those who prefer a more hands-off approach and are willing to meet the minimum balance requirement for investing. It is important to note that both options offer the potential for investment growth and provide tax advantages for qualified medical expenses.

Key Differences:

• Investment Management: HSA at Fidelity allows individuals to choose and manage their own investments, while HSA Go at Fidelity offers a managed account service where Fidelity invests the funds on the individual's behalf.
• Minimum Balance: HSA at Fidelity has no minimum balance requirement, while HSA Go at Fidelity requires a $10 balance to start investing.
• Investment Options: HSA at Fidelity offers a wider range of investment options, including individual stocks, mutual funds, and other securities.
• Accessibility: The self-directed HSA within HSA Go at Fidelity provides quick access to funds through Fidelity Bill Pay and a debit card, making it convenient for short-term qualified medical expenses.

HSA at Fidelity vs. Health Equity

When it comes to choosing between a Health Savings Account (HSA) at Fidelity or Health Equity, there are several factors to consider. Here is a detailed comparison of the two options:

Fees and Minimum Balance Requirements:

• Fidelity HSA: There are no account fees or minimum balance requirements to open an HSA account with Fidelity. You can choose to invest some or all of your HSA funds with no minimum amount required. However, if you opt for the robo-advisor service, Fidelity Go HSA, there is a $10 minimum to start investing.
• Health Equity HSA: There is a requirement to maintain a certain cash balance, which can range from $1,000 to $2,000, depending on the employer's plan. Health Equity also charges additional fees for investing, which can be around 0.36% per year, on top of the expense ratios of the individual funds.

Investment Options:

• Fidelity HSA: Offers a wide range of investment choices, including mutual funds, stocks, bonds, ETFs, treasuries, and more. You can invest in pretty much anything available on the open market. There are no transaction fees for buying or selling funds.
• Health Equity HSA: Offers a limited list of predefined investments to choose from. The investment options may vary depending on the employer's plan.

Transfer Process:

• Fidelity HSA: Transfers to a Fidelity HSA can be done through a 60-day rollover or a Transfer of Assets (TOA) request. The TOA method is preferred as it is a direct, non-reportable transfer, and there is no limit to the number of transfers per year. The typical timeframe for a transfer is 5-7 business days.
• Health Equity HSA: The transfer process from Health Equity can take longer, ranging from 2 to 5 weeks. Health Equity may require liquidating investments and mailing a check to complete the transfer.

Customer Service and Ease of Use:

• Fidelity HSA: Provides a user-friendly interface and convenient digital tools for contributions, tracking transfers, and managing your investments. However, some users have mentioned that Fidelity's customer service can be difficult to reach at times.
• Health Equity HSA: Offers good customer support and an easy-to-use reimbursement system for medical expenses. They also provide a debit card that can be used to pay for prescriptions and other eligible expenses directly.

Overall Recommendation:

Based on the comparison, Fidelity HSA seems to offer more advantages in terms of lower fees, greater investment flexibility, and a smoother transfer process. However, it is important to consider your individual needs and preferences. If you prioritize having a dedicated customer support team and an easy reimbursement process, Health Equity may still be a viable option. Ultimately, the decision should be based on your specific circumstances and investment goals.

HSA investment options

When it comes to investing your HSA, there are a few options to consider. Firstly, you can choose to invest in a variety of different funds, such as mutual funds, stocks, bonds, ETFs, treasuries and more. Some popular fund choices include FZROX, FSKAX, VTI, ITOT, FZILX, VOO, VXUS, and SCHD.

When deciding which funds to invest in, it is important to consider your investment strategy and goals. If you are using your HSA as a long-term investment and do not plan to use it to pay medical bills, you may want to invest in more aggressive funds such as stocks or mutual funds. On the other hand, if you plan to use your HSA for short-term goals or need to access the funds in the near future, you may want to consider more conservative investments such as money market funds or CDs.

Additionally, it is important to consider the fees associated with different investment options. Some HSA providers, like Fidelity, offer a range of investment options with no fees, while others may charge monthly service fees or investment fees. It is also worth noting that some HSA providers may have restrictions on transferring funds or require you to liquidate your investments before transferring to another provider.

Overall, when choosing how to invest your HSA, it is important to consider your investment goals, time horizon, and the fees associated with different investment options. By carefully evaluating these factors, you can make informed decisions about how to best utilize your HSA to meet your financial goals.

Frequently asked questions