Vanguard rolls out HSAs for 401(k) participants - InvestmentNews (2024)

FAQs

Does Vanguard handle HSA accounts? ›

Getting started. To open an HSA featuring Vanguard mutual funds, select the appropriate link on the right side of the screen and complete an application.

The main downside of an HSA is that you must have a high-deductible health insurance plan to get one. A health insurance deductible is the amount of money you must pay out of pocket each year before your insurance plan benefits begin.

It is possible for employers to open up the 401(k) match calculation to include the HSA contribution so the employees don't lose the matching contribution when they contribute to the HSA.

Once you turn 65, you can withdraw your funds for any reason and avoid the 20% penalty that typically applies for nonmedical distributions. You'll only be on the hook for income taxes. That makes an HSA a good supplementary retirement account if you tend to have low medical expenses.

Health Savings Administrators is an HSA provider that does offer a solid choice of investments, including Vanguard funds, but they do charge higher fees than others on this list. They current charge $45 per year in administrative fees, plus 6.25 basis points per quarter (this is $0.625 per $1,000 each quarter).

Comparing HSAs and 401(k)s

The triple-tax-free aspect of an HSA makes it better for tax management than a 401(k). However, since HSA withdrawals can only be used for healthcare costs, the 401(k) is a more flexible retirement savings tool. The fact that an HSA has no RMD gives it more flexibility than a 401(k).

Once you hit 65, you can withdraw your HSA funds for non-medical expenses without penalty and pay only income taxes. But you may want to stop contributing then, too, since you may be eligible for Medicare.

But how much should you save? According to the Fidelity Retiree Health Care Cost Estimate, an average retired couple age 65 in 2022 may need approximately $315,000 saved (after tax) to cover health care expenses in retirement.

Try to invest as much of your HSA money as possible while ensuring that you keep enough cash to cover your qualified medical expenses. Consider where your other retirement plans are invested as well to make sure that your HSA investments provide diversification. Avoid taking out funds from your HSA as much as possible.

Using an HSA and a 401k together

First off, most experts would recommend maxing out HSA contributions before maxing out 401(k) contributions because of the tax advantages that come with the HSA. There's no minimum age for HSA fund distributions, so when you need it to spend money on health care, it's got your back.

What is the one tax advantage that the HSA offers that a 401 K Cannot offer? ›

Tax-free withdrawals

When you contribute to a tax-advantaged account like a 401(k) or an IRA, you can expect to pay taxes on the money once you begin to make withdrawals. But that's not the case with your HSA. You can make tax-free withdrawals from your account to pay for qualified health expenses.

Best: For those who can afford it, max out both HSA and 401k contributions and do so as early in the year as possible. For an age 55+ single worker, that is almost $35,000 pre-tax in 2023. [x] Those who can afford such funding levels might also consider Roth.

Age 65 General Distributions

At age 65, you can take penalty-free distributions from the HSA for any reason. However, in order to be both tax-free and penalty-free the distribution must be for a qualified medical expense. Withdrawals made for other purposes will be subject to ordinary income taxes.

Can I contribute to my HSA if I am age 65 and covered under an HDHP? Yes, you can contribute to your HSA as long as you are an eligible individual and have not enrolled in Medicare Part A, B, or D. Once you enroll in Medicare you may no longer contribute to your HSA.

You're limited to one rollover every 12 months, and you risk owing income taxes plus a 20% penalty for a nonqualified withdrawal if you don't redeposit your HSA funds within 60 days.

Simply contact your original HSA provider and request a trustee-to-trustee transfer. This process bypasses the rollover once-every-12 months rule. Plus, it doesn't reduce your HSA maximum contribution limit for the year.

HSA Closure Fee $25.00 To avoid this fee, keep your account open with HSA Bank and continue to use your HSA funds for eligible expenses.

The four largest HSA providers – HealthEquity, Optum, Fidelity, and HSA Bank – account for nearly two-thirds of the total HSA market, with roughly $64 billion in assets combined. HealthEquity overtook Optum at year-end 2021 as the industry's largest provider and widened its lead in 2022's first half.

HSA contributions per year are limited based on whether you have an individual health plan or a family plan. It's worth adding as much money as you can to your HSA, due to its flexibility and its potential to become an extra retirement account.

Try to max out your 401(k) each year and take advantage of any match your employer offers. Once you max out your 401(k), consider putting your leftover money into an IRA, HSA, annuity, or a taxable account.

Do you lose money in HSA if you don't use it? ›

An HSA does not have any “use it or lose it” rules. If you don't spend the money in your account, it rolls over year after year. You can use HSA funds to pay for qualified medical expenses anytime—and that can be in the current year, next year or even during retirement.

tax-free earnings Any investment earnings in your HSA account grow tax-free, including dividends, interest and capital growth. tax-free distributions An HSA enables you to make tax-free payments for qualified medical expenses, including some that are not typically covered by insurance or Medicare.

What Is the Average HSA Balance By Age? The average HSA balance for a family is about $7,500 and for individuals it is about $4,300. This average jumps up to $12,000 for families who invest in HSAs.

A flexible savings account (FSA) and health savings account (HSA) can help reduce your out-of-pocket costs for dental care. You contribute pretax dollars to the accounts and use the money to pay for eligible dental expenses during the year.

First, HSA contribution limits increased by $50 in 2022 for self-only coverage, from $3,600 to $3,650. Folks with family plans can contribute up to $7,300 in 2022, which is $100 up from 2021. If you're 55 or older, you can contribute an extra $1,000 into your HSA account.

What happens if I contribute to my HSA more than the maximum annual limit that the IRS allows? HSA contributions in excess of the IRS annual contribution limits ($3,600 for individual coverage and $7,200 for family coverage for 2021) are not tax deductible and are generally subject to a 6% excise tax.

HSAs are savings vehicles that offer a triple tax advantage: Contributions go into the HSA tax-free. If contributions are made through payroll deductions, they are also not subject to Social Security or Medicare taxes. You can invest that money and enjoy tax-free growth potential.

Designed for the smart investor, Index Investor HSA™ provides access to Vanguard funds with some of the lowest-cost share classes, no trading fees, and low administration and mutual fund fees for an all-Vanguard fund lineup.

The Vanguard Health Care Index Fund tracks the MSCI US Investable Market Health Care 25/50 Index and offers broad exposure to the health care sector. This fund is geared toward investors who are looking for that type of sector-specific exposure.

Where is the best place to open an HSA account? ›

Fidelity and Vanguard both do a good job keeping costs fairly low, but Fidelity has a slight edge overall. Both brokers charge zero commission for stock and ETF trades, but Fidelity charges $0.65 per contract on options trades, while Vanguard charges $1 per contract for customers with less than $1 million in assets.

Vanguard Health Care's personnel advantage won't be as pronounced after its manager takes on a second role in mid-2021, so its People rating has been lowered to Above Average from High, and the Morningstar Analyst Ratings of both its share classes have been downgraded to Silver from Gold as a result.

Vanguard is owned by the funds managed by the company and is therefore owned by its customers.

The fund's level of return is average for the trailing three-, five- and 10-year periods. The fund has returned 8.49 percent over the past year, 10.16 percent over the past three years, 10.09 percent over the past five years and 13.83 percent over the past decade. The fund launched in May 1984.

An HSA offers triple tax savings,¹ where you can contribute pre-tax dollars, pay no taxes on earnings, and withdraw the money tax-free now or in retirement to pay for qualified medical expenses. That means if you pay qualified medical costs out of an HSA, the money you take out is tax-free.

Fees. For online US Stocks and ETFs. In our study of the top 10 investment HSAs, Fidelity ranks as the lowest cost provider. Fidelity does not charge any account transactions fees or any separate account fee to invest.