Don’t settle for a subpar health savings account

CHRISTINE BENZ of Morningstar Paired with high-deductible healthcare plans physical condition savings accounts help ease healthcare costs HSAs are a triple tax-advantaged motorcycle in the tax code allowing for pretax contributions tax-free compounding and tax-free withdrawals for qualified anatomical expenses However limited owners fund their HSAs to the maximum and even fewer invest their HSA dollars outside a savings account Related Articles US employers added jobs in November but lost in October the authorities reported in delayed reports FDA OKs libido booster for women Return to sender As ability bills spike Massachusetts DPU launches review of delivery charges Ford scraps F Lightning as mounting losses and falling consumer interest hits EV plans Ticker New York City is getting its first Las Vegas-style casinos Roomba maker iRobot files for bankruptcy Preponderance consumers likely don t fill their HSAs because they lack the financial means critics note that the HDHP HSA combination can be less beneficial for lower-income workers But even wealthy consumers may decline to fully fund their HSAs Numerous HSAs charge account-maintenance fees and extra costs for investing in long-term assets Unlike k s where participants are typically captive in employer plans HSA savers can move money from one HSA to another via transfer or rollover Below how to know if your HSA is subpar and what to do if it is Valuable Tax Advantages May Come at a Price HSAs appear preferable to other tax-advantaged savings vehicles especially for investors expecting out-of-pocket healthcare expenses Even in a worst-case scenario using HSA funds for non-healthcare expenses the HSA is at least as good as a traditional tax-deferred k or IRA Yet HSA expenses and or financing shortcomings can erode their tax benefits particularly for smaller HSA investors Flat dollar-based account-maintenance fees say year hit smaller HSA investors harder and interest rates for smaller HSAs may be lower It s worthwhile to conduct due diligence on your HSA assessing the following Setup Fees A one-time fee imposed at account opening sometimes covered by employers Account-Maintenance Fees Monthly or annual fees for maintaining your account also sometimes covered by employers Transaction Fees Dollar-based fees that may be levied when paying for services using the HSA Interest Rate on Savings Accounts For people using the HSA to fund out-of-pocket healthcare costs or taking a hybrid approach it s particularly significant to monitor your savings rate of return Plenty of HSAs offer higher interest rates on larger balances that argues for building and maintaining critical mass in your HSA Investment-Related Expenses Investors may face mutual fund or ETF expense ratios sales charges and dollar-based fees for maintaining expenditure accounts Outlay Choices Assess the outlay lineup on offer to make sure it aligns with your resources philosophy How to Switch Out of a Poor HSA If your employer-provided HSA is lacking you have three choices Option Contribute to an HSA on Your Own If you re enrolled in a HDHP you can choose a different HSA provider and deduct your HSA contributions on your tax return That s more cumbersome and requires more discipline than payroll deductions so forgoing payroll deductions is usually not the best option Option Transfer the Money from Your Employer-Provided HSA Into Another HSA Your HSA contribution comes directly from your paycheck and goes to your employer-provided HSA you can then periodically transfer particular or all of that balance into your preferred HSA provider There are no tax consequences on HSA transfers and you can conduct multiple transfers per year You can have more than one HSA so this approach can work well for employees whose captive HSAs feature decent savings but less-compelling financing options Option Roll Over the Money From Your Employer-Provided HSA Into Another HSA This is similar to option You contribute to your employer-provided HSA via payroll deduction then roll over the money to your preferred HSA provider There are two key differences between a rollover and a transfer In a transfer two trustees handle the funds In a rollover you get a check that you must deposit into another HSA within days or it counts as an early withdrawal and a penalty will apply if you re not yet Multiple transfers are permitted between HSAs but only one HSA rollover is allowed every months This article was provided to The Associated Press by Morningstar For more personal finance content go to https www morningstar com personal-finance Christine Benz is director of personal finance and retirement planning for Morningstar