There are always fun wrinkles when you change employers. You cross your fingers and hope they have the same 401k brokerage, the same Health Savings Account provider, and same health insurance provider to make things easy. Unfortunately for me, I struck out on all three. After receiving my second HSA card in the mail a few months ago, I quickly became annoyed with having two accounts. So I decided to look into this further and determine if I should keep two separate Health Savings Accounts or combine the two accounts.
The Situation – Why Am I Even Investigating This?
I started to discuss this in the introduction. But I find myself in this situation because my old employer used MyBenefitWallet for their Health Savings Account (“HSA”) while my new employer uses PayFlex. After writing an article about HSA accounts and the tax-benefits of an HSA account several months ago, I learned a few things that were helpful in my analysis. First, I can roll over my HSA account once per year without jeopardizing its tax-free status. If I decide to do this in January or February, I’m stuck for the rest of the year (which shouldn’t be a problem).
Second, before deciding one way or the other, I need to make sure I will receive some of the same benefits at PayFlex as I am at MyBenefitWallet. This includes being able to invest cash over $1,000, having similar mutual funds to select from, not incurring outrageous fees on my investment account, and so on. Honestly, nothing in this analysis will be rocket science. It is a financial house-cleaning item that I have been meaning to do over the last few months. Finally, I sat down with a cup of coffee, performed the research, and wanted to share my thought process with all of you.
Right out of the gate, I learned that PayFlex allows you to invest cash once your balance reaches $1,000. This was the same dollar threshold as my other HSA account. I was excited that the minimum cash dollar threshold didn’t increase with the transfer (i.e. $2,000 or $5,000). I have over $700 in my new HSA account at the time of this article, over $900 in my old account, and over $5,000 in investments. So once transferred, I should be able to invest the funds immediately as I will have exceeded this threshold.
For the rest of the article, I will review and discuss some of the other major points in my thought/decision process.
Similarity of Mutual Funds in Investment Accounts
I thought this one was pretty interesting, honestly. In my old employer’s account, I selected the mutual fund VITSX, Vanguard Total Stock Market Index Fund Institutional Shares. You know the type of fund. It is your standard Vanguard Index Fund that mirrors the broader market, has a super low expense ratio, and a dividend yield of about 2%. This is the type of account I select for most of my mutual fund investments, including my funds held at Vanguard, since it is pretty difficult to beat the broader market in the long run. One of my concerns was that I would not like the investment options in the new account. If the investment options sucked, or were all high expense ratio mutual funds, I would simply keep my cash in the old account.
However, when I began researching the investment options for my employer’s new account, I found one that was eerily similar: VFIAX, Vanguard 500 Index Fund Admiral Shares. Just take a look for yourself, I compared the Top 10 holdings on Vanguard’s website and I compared the mutual fund composition as well. Pretty similar, right?
On top of it all, both mutual funds have similar dividend yields (~2%) and expense ratios (~.04%). Knowing that I will be able to achieve the same investment objectives made me feel a lot better about potentially consolidating our funds into one account.
Fees for HSA Investment Accounts
This one was pretty easy. My new employer’s HSA plan offers NO FEES on my investment account. YES! Conversely, my old employer’s HSA account charges you $2.70/month to have an investment account, or $32.40 annually. Since my plan is to maintain my investment accounts for the long-term (hopefully converting into an IRA one day), these account fees would begin to add up. In total, I would incur the following fees of I held my investments for the following years:
- 2 Years – $64.80
- 5 Years – $162.00
- 10 Year – $324.00
- 20 Years – $648.00
This of course assumes that the investment fees do not increase over the years. Since I am a Dividend Diplomat, let’s see how much dividend income that would cost me. Assuming a 3% dividend, this would represent $.972 of dividend income annually. And this amount would continue to grow with each year. By year 20, this would equate to $19.44 in dividend income at the current fee levels.
Investing “Trapped” Cash
This is how I am going to add some nice dividend income right here. Since the mutual funds are so similar, from their holdings, allocations, and dividend yields, based on my analysis above, how am I really going to add additional dividend income? By releasing what I am calling the “Trapped” cash in my old HSA account.
The “Trapped” cash I am referring to is the amount of cash remaining in my HSA balance that is below the investment threshold. Earlier I mentioned how the plans from both employers allow you to invest cash after reaching $1,000.
After leaving my former employer, I had a few medical bills to pay. Now, the account has a cash balance of $920.49 outstanding. Since my new employer uses a different HSA provider, I had to start building a new cash reserve before investing in their HSA account. In my current set up, I will have two HSA accounts that require a $1,000 cash reserve threshold to invest. If I only had one HSA account, I would only need to maintain a $1,000 cash reserve balance.
Thus, in my old employer’s account, this $920.49 is “Trapped.” I can’t invest it due to the minimum thresholds and the cash balance is not earning an interest rate. Since I am about to reach the $1,000 cash balance in my new employer’s account, I would be able to transfer this balance an invest the full amount and invest it immediately. Applying a 2% dividend yield, this would potentially add $18.49 in annual dividend income.
Is that a ton of dividend income? No. But this doesn’t include the awesome capital gains distributions realized each year, which helped me achieve a record setting dividend income month in December 2018. This also doesn’t account for the impact of dividend increases and growth over the years. On top of it, that is a heck of a lot better than the 0% the cash is earning right now!
Simplifying My Finances with One Less Account
While this last point may not have any financial benefits, it will save some time and help simplify my finances in one regard. Because let’s be honest, it is annoying having two separate accounts. Two different cards, two different log-ins, and two different funds/fees to monitor and track. Just having one less item to monitor on a regular basis would be really, really nice. It would be one thing if there was a major difference between the accounts. But as this article has proven, the two HSAs are essentially the same. So why not merge the accounts and just be done with it! I’ve been through the process of Simplifying My Finances in the past, so it may be time for another round of this.
Summary – The decision
Hopefully you picked up on my final answer as the article went on. I am going to begin the process of consolidating my HSA accounts shortly. There simply were more pros than cons in this situation and the accounts proved to be similar. I’ll be able to achieve the same investment objectives, with lower monthly fees, and earn additional dividend income by investing the “Trapped” cash. I’m sure this process will take longer than I would expect to complete. Hopefully, since this is January, everything should be set up and ready to go before the March dividend is announced and paid!
Would you have merged accounts if you were me? Have you done this in the past? What have you done with your HSA accounts when you changed employers?