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mutual-funds

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June 6, 2025 Score: 5 Rep: 340 Quality: High Completeness: 50%

I've helped clients through HSA provider switches, and yeah - what you experienced with Optum to HealthEquity is pretty common.

Each HSA provider has an Investment Committee or Product Team that chooses which funds to offer. It's based on:

  • Fees (low expense ratios)
  • Performance
  • Existing deals with fund families (like Vanguard)
  • Platform compatibility

So the lineup is a business decision, not user-driven.

Why are the fund lists so different?

Even though both use Vanguard, they have different agreements and only offer a subset. That’s why in-kind transfers rarely work — funds need to match exactly (ticker + share class).

Does Vanguard create funds for them?

No — Vanguard offers a wide range of funds already. HSA custodians just pick from that list. Vanguard isn’t tailoring them per HSA provider.

Is this vendor lock-in?

Kind of, yeah. It’s not illegal or shady, but it forces liquidation during transfer and limits flexibility — especially frustrating if there’s a tax hit.

June 6, 2025 Score: 4 Rep: 150,930 Quality: Medium Completeness: 30%

Focusing on the tax issue:

As a result the opportunity for an in-kind transfer was precluded for most of the employees who would have chosen to retain their investments had such an option been possible. (Many in fact had to liquidate their investments to cash for the transfer to proceed and for those who lived in the applicable states were pushed into a taxable event they did not prefer).

I was not aware that an HSA to HSA (especially one dictated by the employer) was ever a taxable event. But a few states do tax dividends, interest and capital gains related to HSA funds. But they were always going to tax them when the funds were sold to use for medical expenses. The transfer just caused them to be due sooner.

I would make a comment to your employer. They may not be aware that the decision to change HSA companies triggered a tax hit.

There was another option. The funds could have been left with the original FSA company. When somebody retires, quits or is fired, they can keep the HSA funds where they are, or they can roll them over. One thing that happens is that if the company was covering the monthly costs of the program, they don't do that for former employees.

It is possible to keep your HSA funds someplace besides the financial company your employer has picked. Payroll can automatically send funds to their preferred HSA company, but are unlikely to send it to an unrelated one. If you do the transfer your self that will be with post-FICA funds. It may miss out on company matches, and the company paying the monthly fee.

Each person would have to determine which option is more expensive in the short term and the long term.