HSA Investment Options - Paylocity vs. Fidelity for health savings accounts

I've been managing HSAs for years and can help clear this up. You're facing a common dilemma with HSAs - employer convenience versus investment flexibility. With Paylocity, you get the full tax advantage (income tax AND FICA tax savings) through payroll deduction. This is roughly a 7.65% additional tax savings that you can't get if you fund an HSA outside your employer's plan. The downside is you're limited to their investment options. With Fidelity, you'd get better investment options and typically lower fees, but you'd lose the FICA tax savings since your employer can't direct deposit there. You'd also have to manually contribute and then deduct those contributions on your tax return (getting only income tax savings, not FICA). My suggestion: Contribute through your employer's Paylocity HSA to get the full tax benefit, then periodically transfer funds to Fidelity. Most HSA providers allow free transfers (called "trustee-to-trustee transfers") once or twice per year. This way, you get the best of both worlds - full tax savings and better investment options.

Just wanted to share my experience with this exact situation. I was stuck with a terrible employer HSA with high fees and bad investment options. I discovered https://taxr.ai which helped me analyze exactly how much I was losing in fees and suboptimal investments. It showed me I was leaving almost $1,200 on the table annually by not optimizing my HSA strategy! I ended up doing what the first commenter suggested - contribute through my employer plan for the FICA tax savings, then periodically transfer to Fidelity. The tax savings calculator on taxr.ai confirmed this was the optimal approach. Might help you visualize the actual dollar impact of different HSA strategies in your specific situation.

Just wanted to update that I tried the taxr.ai calculator mentioned above, and it was actually super helpful! It confirmed I was losing about $850 per year in my employer's crappy HSA from a combination of administrative fees and limited investment options. I followed the advice here and set up my contributions through my employer's HSA (Optum in my case) to get the FICA savings, then did my first transfer to Fidelity last month. The whole process was easier than I expected. The Fidelity interface is WAY better than my employer's HSA, and the investment options are fantastic - tons of low-cost index funds with no transaction fees. Definitely recommend this approach if you're in a similar situation with your HSA. The tax savings plus better investment options is a no-brainer once you understand how it works.

For anyone dealing with HSA issues or trying to make transfers between accounts, I found that trying to call the HSA providers directly is an absolute nightmare. Spent 3+ hours on hold with my provider trying to sort out a transfer issue. If you're facing similar problems, check out https://claimyr.com - they'll actually call and wait on hold for you, then ring your phone when a human representative is on the line. I used their service when I was trying to resolve an issue with my HSA transfer that got stuck in limbo. You can see a demo of how it works here: https://youtu.be/_kiP6q8DX5c Saved me hours of hold music and frustration when dealing with my HSA provider's customer service. Just thought I'd share since HSA companies are notorious for having terrible phone support.

Well I'm eating my words. After spending literally 2.5 hours on hold with my HSA provider yesterday trying to fix an issue with my investment allocations, I broke down and tried the Claimyr service mentioned above. It actually worked exactly as described. I put in my phone number, they called the HSA company for me, and then about 45 minutes later my phone rang and there was a rep on the line ready to help. I didn't have to listen to a single second of hold music. Would have been worth it just for that, but the rep I got was actually able to help me fix the allocation issue AND refund some fees that were incorrectly charged to my account. So yeah, consider me converted. Definitely using this again next time I need to call any company with notorious hold times.

If you go with Paylocity, make sure you check what the minimum cash balance requirement is before you can invest. With my company's HSA (not Paylocity), they require $1,000 to be kept uninvested in a cash account earning basically nothing before you can invest the rest. It's ridiculous. Fidelity has no minimum balance requirement for investments, which is another huge advantage. Worth considering in your calculations.

Has anyone actually looked at OP's investment options with Paylocity? Are they mainly target date funds or do they have some decent index fund options? The fees make a huge difference over time.

Great decision Tyler! You've got a solid plan there. Just wanted to add a few practical tips for when you start doing those transfers: 1. Keep track of your transfer dates - most HSA providers limit you to 1-2 free transfers per year, so you'll want to batch them up rather than doing frequent small transfers. 2. Consider doing your first transfer once you hit around $2,000-3,000 in your Paylocity account. This way you're past their minimum balance requirement and have a decent amount to make the transfer worthwhile. 3. When you do transfer, leave a small buffer in your Paylocity account (maybe $100-200) to cover any potential fees or timing issues with future payroll contributions. 4. Make sure to update your investment allocations in both accounts so new money gets invested automatically rather than sitting in cash. The fee difference you mentioned (0.35% vs Fidelity's zero-fee funds) will really add up over time. On a $10,000 balance, that's $35/year you're saving, and as your HSA grows to $50,000+ over the years, you'll be saving hundreds annually. Smart move!