Can You Choose Your Own HSA Provider?

by Michael on Nov 21, 2012 · 2 comments

Photo of Piggy Bank, Doctor, and Stethoscope

Last week, I wrote about my experiences choosing the best HSA for investing. If you want to invest in your HSA, check it out.

In response to that post, a reader named Linda expressed surprise that you can choose your own health savings account provider.

Well, it’s true. While it’s common for employers to offer an HSA to go along with their high-deductible health plan (HDHP), you’re free to choose an independent provider.

Choosing your own provider

Advantages of choosing your own provider include the ability to minimize fees and/or to choose a provider with better investment options. If you’re not interested in investing this may be less of an issue, but it might still make sense.

If you do choose your own provider, you may have to make the contribution(s) directly instead of contributing via payroll deduction. Note that some employers may allow you to contribute to an outside HSA provider via payroll deduction, but mine doesn’t so I can’t comment directly on that possibility.

Tax considerations

If you make your contributions directly, the contribution limits are the same and you’ll still be able to deduct them from your income taxes, but…

The downside of foregoing payroll deduction is that you’ll miss out on the opportunity to dodge FICA taxes. That might not seem like a big deal, but it works out to 7.65% — 6.2% for Social Security and 1.45% for Medicare.

Of course, if you earn more than the Social Security ceiling (i.e., the maximum amount on which Social Security taxes are calculated) it makes less of a difference, but you can still save the Medicare taxes by doing payroll deduction.

Other considerations

Another possible issue would be if your employer provides matching contributions. This is less common for HSAs than for things like 401(k) plans, but some employers do match at least a portion of their employees’ contributions. To take advantage of this, you may need to use your employer’s HSA custodian.

A hybrid solution would be to contribute to your employer’s preferred HSA provider via payroll deduction and then periodically transfer the funds out to you your preferred provider. Just be sure that you won’t have to pay transfer fees, or that it’s still worth it after factoring in the fees.

If you’re in the market for a provider, you might be interested in my comparison of HSA Bank vs. HSA Administrators. Based on my research, these are two of the best providers out there — especially if you want to invest within your account.

1 Edward Antrobus November 21, 2012 at 1:23 pm

My wife’s company doesn’t match HSA contributions, but it does offer health incentive bonuses. We can get up to $800 per year in free HSA money for hitting certain health targets like blood pressure and BMI.

2 Michael November 21, 2012 at 2:52 pm

Edward: That sounds like a great deal, and incentivizing good health is also a good way for companies to manage their healthcare expenses.

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