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Two HSAs Often Better Than One, CDMR Finds
[Exclusive from Consumer Driven Market Report newsletter]
Two separate HSAs from different banks instead of one single all-purpose HSA account with the same bank is a convenient way to be both a saver and spender, Consumer Driven Market Report discovered in our new ongoing study of online HSA enrollment.
We established 10 separate HSA accounts for a single person as part of the project – all of them through online enrollment. We of course can only have one single qualified HDHP for all 10 HSAs, and can’t contribute more than the max to the combined accounts in any given year. But otherwise a single consumer can have as many HSAs as they like and are not limited to one HSA.
Most HSAs currently have a single spending account for the HSA, with a link to investments. After you reach a threshold (usually $2,000) you can move your money out of the HSA bank into a separate mutual fund company affiliated with that bank. This works well in most cases for most people.
But another way of doing it is to have two HSAs.
The first HSA is used with a debit card for spending on medical care – you keep a thousand or less there to cover routine expenses. The second HSA is used solely as an investment vehicle where you put most of your contribution and set it up to receive regular automatic contributions.
The big advantage is that you can shop for the best bank or mutual fund family if you are stuck in a health plan which only offers a single custodian with below-par mutual funds, or you like the HSA website of another bank. Some HSA banks even allow you to go right into an unlimited selection of mutual fund families with no minimum, while most have minimums of $1,000 – not much to keep aside if you are investing $5,000 a year in a mutual fund.
The real beauty is that all the major online bank HSAs now allow direct ACH transfers out of your checking account, so you can move money into either HSA with ease. If your employer is making a deposit into the first HSA automatically, you don’t even have to worry about your first HSA’s balance. If not, you make auto-contributions into the investment HSA, but add money to the spending HSA as needed. You can’t do that with a solo HSA.
Most people are stuck in the mindset that HSAs are an insurance product, or limit you to a single bank or mutual fund. In fact, HSAs are an online banking product – you can have as many as you like and shop around with ease.
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