***Disclaimer: I am neither an attorney nor an accountant. Before choosing to implement any investment concepts, you must seek the advice of professionals who understand the specific investment tool you intend to incorporate. This is equally true when using your retirement account(s) to invest, such as Roth and/or Traditional Individual Retirement Accounts. What I write is a progress report based solely on my own experiences as an investor. It is NOT recommended for anyone who has yet to understand what it means to make investments using retirement accounts, including Health Savings Accounts.***
While still an employee of a large company, in addition to paying into Social Security and Medicare every month, I was also able to contribute the maximum-allowable funds into a Health Savings Account. I had a high-deductible, low-premium medical-insurance coverage at the time. I was able to use the funds in my HSA account to pay for health-insurance premiums and other medical expenses. HSA funds can be used while employed as well as in retirement. It was nice knowing that I could pay for medical expenses tax free.
As I left the company in late 2004, there was a small amount still left in the HSA account. Instead of using up the balance for medical expenses, I chose to leave it in the account because I had plans to make investment decisions myself with the balance and, obviously, to grow it. The fee was only about $2.50/month. Over the years, I often thought of moving it to a custodian (let’s call it Custodian A) of our other retirement accounts. I hesitated all these years, however, because the flat fees – albeit quite reasonable – would have been higher by about seven-fold. To justify the higher fee, I would have had to know exactly how to invest the funds so that I could grow what was left in that account. Otherwise, over time, the fees alone would have eaten up what was left in it.
Fast forward to earlier this month, with much help from David who figured out the details, I finally moved it – but to a different custodian (Custodian B). To my pleasant surprise, Custodian B charges no fee. The only fees involved are brokerage fees for when I choose to make trades. And those fees are less than half of what Custodian A charges per trade. You may be wondering, “If that’s the case, why would you still keep your other retirement accounts with Custodian A?” The easiest answer is that there is a reason Custodian A charges a premium.
First, David and I have learned (and continue to learn) a lot about investing using our retirement funds in the hands of Custodian A. You could say that there is an element of brand loyalty to Custodian A.
Second, Custodian B that I chose is one of three HSA-custodian companies that is designated by Ameritrade. That is, investments that I can make using Custodian B are limited to those that are available on Wall Street. In other words, it does not include real estate (which is very important to me), precious metals, or anything else. In contrast, Custodian A offers comprehensive investment opportunities – any investment opportunities you can conjure up so long as they are within the IRS guidelines. With seemingly a gazillion IRS codes to decipher, we rely heavily on our existing Custodian A’s up-to-date knowledge about what is and is not allowed by the IRS.
At this point, I think I need to clarify something, especially for those who have been following my blogs on “Investing Outside of Wall Street.” I was determined never to return to Wall Street; i.e., invest in stocks and/or mutual funds. This was true because, back then, I was using the words “stocks,” “mutual funds,” and “Wall Street” interchangeably, as if they were synonymous with one another. All along, what I really meant was to never rely on someone on Wall Street – who has no fiduciary duties to me – to manage my money. By gradually pulling money out of Wall Street sometime after the dot-com market crash of 2000, I began on a journey to actively manage my own investments. And here I am in 2019.
This time, in addition to reading a lot about what is going on in the world from various sources, I’m paying for advice from, and taking recommendations of, an analyst whose name I have known for quite some time. I’ve been reading many of his comprehensive analyses, which are always based on historical data. In terms of stock picks, what he recommends – and, more importantly, the why behind each pick – has made very good sense to me every single time. And the best part? Whether or not to pull the trigger – i.e., to invest or not to invest in what he recommends – is up to me. In other words, he does not benefit from my investment decisions. In this sense, he is a lot like a fee-only, fiduciary-bound Certified Financial Adviser.
I’m sorry to disappoint those who are looking for his name but, at this stage, I’m not ready to reveal it. In fact, despite the strong confidence that I have in his recommendations, I’m not about to put everything into this one basket. Far from it. The losses sustained from the dot-com market crash still impact how I think about anything related to Wall Street.
The small balance that is left in my HSA is well suited for checking out this new strategy to see how good this gentleman’s recommendations really are. The worst-case scenario would be that if I lost it all, the damage is nominal. Under this scenario, his name will never be revealed.
The best-case scenario, of course, would be that, over time, it performs well. If and when this happens, enabling me to give myself permission to publish book #2, I’d be happy to reveal his name in the book.
By the way, according to the IRS publication 969, once you’re eligible for Medicare, which is age 65 for most Americans, you can no longer contribute to your HSA. There is, however, no limit to how much you can grow within the existing account. Therein lies the fun of facing the challenge – to grow it from nearly nothing (as in my case) to something potentially very big. And if you ever need to, you can always use the tax-free money on eligible medical expenses, including such items as insurance premiums, prescription drugs (the portion that is not covered by your insurance), etc. for yourself and your spouse. This is the whole point of an HSA.
Especially for those retirees on a fixed monthly income, the ability to pay for medical expenses out of an HSA helps reduce the out-of-pocket burden.
Assuming that it works well, my goal is to let it grow to a point where the financial burden I may put on Medicare is nil to none. This is the least I can do for this country that has graciously accepted and given this adult immigrant the freedom and independence that I have been able to enjoy.
Happy investing!
