Feels Impossible to Invest with HSA in California?

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sweeden22
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Feels Impossible to Invest with HSA in California?

Postby sweeden22 » Fri Nov 18, 2016 6:54 am

These past few months I have had a HSA, which I put the max amount in each month. Sadly, I am in California which makes the investing difficult. The bank is Optum, and I'm under an odd program with pretty much only expensive Wells Fargo funds.

The only decent one is one S&PF Index that has expense ratio of .25.

However, it seems if I do that, it will be very difficult to keep track of income from the investing especially if I was buying into it regularly, several times a year like I would like.

I've read of special funds that are not taxed, but those are not available under my HSA program.

What would be the best thing to do? Just once a year buy a set amount of the S&P index fund? Or would I need to change which fund I buy each year to keep the book keeping clear? If in year one I bought 26 shares at $66.64 and year two I bought 50 share at $70.00.

If in year 3, I needed to turn 35 shares into cash, would 26 of the shares come from the first year and 9 from the second year buy? How do you know which ones you're selling if it's the same fund?

Thanks!!

b42
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Re: Feels Impossible to Invest with HSA in California?

Postby b42 » Fri Nov 18, 2016 8:14 am

Welcome to the forums!

I am a little unclear with what exactly you are asking.

Normally with an HSA account, there should be some sort of transaction history that you could download or copy down.

You mention keeping track of the cost basis of each share. For tax-defferred accounts like an HSA you do not need to keep track of the cost basis as long as the funds are used for qualified expenses, since the earnings are tax-free.

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dodecahedron
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Re: Feels Impossible to Invest with HSA in California?

Postby dodecahedron » Fri Nov 18, 2016 8:24 am

b42 wrote:You mention keeping track of the cost basis of each share. For tax-defferred accounts like an HSA you do not need to keep track of the cost basis as long as the funds are used for qualified expenses, since the earnings are tax-free.


This statement would be true in most places, but the OP lives in California, where income generated by HSA investments is subject to state income taxes.

To the OP: if your investment policy statement calls for any inflation protected fixed income component, you might consider a Bank of America (BoA) HSA, which offers the option to invest in Vanguard's Treasury Inflation Protected fund (VIPSX). Since it is invested in US Treasury debt, there would be no state taxes to worry about and your tax bookkeeping would be simplified. There is a monthly fee of $4.50/month but that fee can be waived for BoA Platinum customers (relatively easy to qualify for with many other benefits much discussed elsewhere on this forum.)

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grabiner
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Re: Feels Impossible to Invest with HSA in California?

Postby grabiner » Fri Nov 18, 2016 11:10 pm

dodecahedron wrote:To the OP: if your investment policy statement calls for any inflation protected fixed income component, you might consider a Bank of America (BoA) HSA, which offers the option to invest in Vanguard's Treasury Inflation Protected fund (VIPSX). Since it is invested in US Treasury debt, there would be no state taxes to worry about and your tax bookkeeping would be simplified.


But not eliminated; you would still need to keep track of your basis, as any capital gains or losses would be subject to CA tax. (This also applies in AL, but not in NJ, which does not tax capital gains on Treasury funds.)

You could also use any HSA with a brokerage option, and buy Treasury or TIPS ETFs.

sweeden22 wrote:What would be the best thing to do? Just once a year buy a set amount of the S&P index fund? Or would I need to change which fund I buy each year to keep the book keeping clear? If in year one I bought 26 shares at $66.64 and year two I bought 50 share at $70.00.

If in year 3, I needed to turn 35 shares into cash, would 26 of the shares come from the first year and 9 from the second year buy? How do you know which ones you're selling if it's the same fund?


When you sell, there are several rules for identifying which shares you sold; see Cost basis methods on the wiki. (Brokerages might not allow you to use specific identification for an HSA.)
David Grabiner

jusden
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Re: Feels Impossible to Invest with HSA in California?

Postby jusden » Fri May 19, 2017 10:21 pm

I am in a similar issue as the OP in this post. I'm in California and have a Bank of America HSA. It looks like fund options have changed and they no longer offer Vanguard funds, since dodecahedron's recommendation last year of using (VIPSX) to minimize California state taxes. Is using IUTIX Columbia US Treasury Index Fund (Z) tax exempt in a California HSA?

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grabiner
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Re: Feels Impossible to Invest with HSA in California?

Postby grabiner » Fri May 19, 2017 10:48 pm

Welcome to the forum!

jusden wrote:I am in a similar issue as the OP in this post. I'm in California and have a Bank of America HSA. It looks like fund options have changed and they no longer offer Vanguard funds, since dodecahedron's recommendation last year of using (VIPSX) to minimize California state taxes. Is using IUTIX Columbia US Treasury Index Fund (Z) tax exempt in a California HSA?


Any Treasury income is exempt from CA tax, as long as the fund holds at least 50% Treasuries. And at 0.2% expenses, this isn't too expensive, so it's a good choice if an intermediate-term Treasury fund fits your investment needs. (You could adjust your portfolio for having Treasuries here by holding more corporate bonds in your IRA.)

If you do want TIPS, you can move your money to a different HSA provider who offers a TIPS fund, or a brokerage account in which you can buy TIPS ETFs.
David Grabiner


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