HSA allocation changes due to move to CA

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seeker24
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HSA allocation changes due to move to CA

Post by seeker24 »

Hello all,

My HSA in Fidelity makes up 14% of my portfolio. Currently, I am invested in
FXAIX (Fidelity 500 index fund) - 67%
VTI (Vanguard IDX Fund) - 13%
VT (Vanguard intl equity index fund) - 20%

I am currently in midwest. But will be moving to CA state by December end. One recommendation earlier by some of them is to move funds from FXAIX to VT ETF to minimize capital gains tax, once I move to CA. Then my HSA allocation in CA would look like:
VT - 87%
VTI - 13%

Any thoughts on the above proposed changes? Can I do any better? The goal is to minimize cap gain tax in CA as HSA is considered brokerage acct in CA.

I did see threads that talk about buying treasuries etc. in HSA account. I am not pursuing that because I am sitting on 110k hard cash in my savings account - which I am treating that as bond allocation.

Thank you!
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dual
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Post by dual »

I want to minimize the income tax reporting so I invest in the treasury money market fund fdlxx and Berkshire Hathaway brk.b. These do not generate any state taxable income until I decide to sell the Berkshire Hathaway.
nalor511
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Re: HSA allocation changes due to move to CA

Post by nalor511 »

Any VG ETF (and most other ETF) will avoid cap gains, doesn't have to be VT. You will save expense ratio by holding vti+vxus. Fidelity tracks all cap gains and dividends anyway, which are taxed in CA as well, you just won't get a 1099 and have to view it in your dashboard
Topic Author
seeker24
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Re:

Post by seeker24 »

dual wrote: Wed Nov 24, 2021 12:37 am I want to minimize the income tax reporting so I invest in the treasury money market fund fdlxx and Berkshire Hathaway brk.b. These do not generate any state taxable income until I decide to sell the Berkshire Hathaway.
Yes, I considered that earlier but I felt ER of 0.42 is relatively high at that point. Wouldn't you think so?
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dual
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Post by dual »

Fdelity eats the expenses of fdlxx since they can't break the buck. so basically it's a parking place.
When t-bills get above zero interest I will then invest in a ladder with autoroll.
Last edited by dual on Wed Nov 24, 2021 1:10 pm, edited 1 time in total.
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gobel
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Re: HSA allocation changes due to move to CA

Post by gobel »

seeker24 wrote: Wed Nov 24, 2021 12:24 am One recommendation earlier by some of them is to move funds from FXAIX to VT ETF to minimize capital gains tax, once I move to CA.
You'd want to make any changes *before* becoming a resident of CA - if you have gains.
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zincTwo
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Re: HSA allocation changes due to move to CA

Post by zincTwo »

gobel wrote: Wed Nov 24, 2021 1:20 am
seeker24 wrote: Wed Nov 24, 2021 12:24 am One recommendation earlier by some of them is to move funds from FXAIX to VT ETF to minimize capital gains tax, once I move to CA.
You'd want to make any changes *before* becoming a resident of CA - if you have gains.
Agreed... but wouldn't it be that the changes need to be made in the year prior to becoming a resident? If OP sells now(Nov), becomes a CA resident on Dec.31... then I think CA rules win?
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seeker24
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Re: HSA allocation changes due to move to CA

Post by seeker24 »

This is a good point. So if I put my deposit for an apartment to rent in CA in December next month, will I be classified as a resident from December?

I plan to actually move in Jan first week for that exact reason, although I can't time it that precisely. By definition, one becomes a resident when one moves in or in the month they sign the lease?

I know it sounds obvious...
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grabiner
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Re: HSA allocation changes due to move to CA

Post by grabiner »

zincTwo wrote: Wed Nov 24, 2021 7:56 pm
gobel wrote: Wed Nov 24, 2021 1:20 am
seeker24 wrote: Wed Nov 24, 2021 12:24 am One recommendation earlier by some of them is to move funds from FXAIX to VT ETF to minimize capital gains tax, once I move to CA.
You'd want to make any changes *before* becoming a resident of CA - if you have gains.
Agreed... but wouldn't it be that the changes need to be made in the year prior to becoming a resident? If OP sells now(Nov), becomes a CA resident on Dec.31... then I think CA rules win?
If you sell and move to CA later in the same year, the tax cost is minimal.

The way CA taxes part-year residents is that you compute your total income and determine what the tax would be on that income, then multiply by the fraction of income earned while a CA resident (or from a CA source while a non-resident). For example, if you have $45K in income before you move to CA and $45K after, your CA tax is half the tax on $90K. If you take an extra $10K capital gain while a CA nonresident, you now have $100K in total income, so your CA tax is 45% of the tax on $100K, which is slightly more because tax rates are progressive. But if you take that $10K capital gain while a CA resident, your CA tax is 55% of the tax on $100K, which is much more.

Also, CA allows you to carry over capital losses from before you were a resident. If you sell for a capital gain before becoming a resident, even in an earlier year, this will use up some of your loss carryover.
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seeker24
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Re: HSA allocation changes due to move to CA

Post by seeker24 »

grabiner wrote: Fri Nov 26, 2021 5:39 pm
If you sell and move to CA later in the same year, the tax cost is minimal.

The way CA taxes part-year residents is that you compute your total income and determine what the tax would be on that income, then multiply by the fraction of income earned while a CA resident (or from a CA source while a non-resident). For example, if you have $45K in income before you move to CA and $45K after, your CA tax is half the tax on $90K. If you take an extra $10K capital gain while a CA nonresident, you now have $100K in total income, so your CA tax is 45% of the tax on $100K, which is slightly more because tax rates are progressive. But if you take that $10K capital gain while a CA resident, your CA tax is 55% of the tax on $100K, which is much more.

Also, CA allows you to carry over capital losses from before you were a resident. If you sell for a capital gain before becoming a resident, even in an earlier year, this will use up some of your loss carryover.
Thanks for the example. I am currently renting out of CA. I plan to rent when I am in CA. The rent prices are surging more right now than ever. It's just crazy.

I am aiming to 'move-in' in January to keep taxes less complicated. But I am facing an issue where the landlords want me to move in by Dec 25. And I don't want to do that for tax reasons.

Where I am unclear is - when am I considered CA resident? the day I sign the lease to move-in on future date, or the move-in date? Thanks.
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grabiner
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Re: HSA allocation changes due to move to CA

Post by grabiner »

seeker24 wrote: Fri Nov 26, 2021 9:10 pm I am aiming to 'move-in' in January to keep taxes less complicated. But I am facing an issue where the landlords want me to move in by Dec 25. And I don't want to do that for tax reasons.

Where I am unclear is - when am I considered CA resident? the day I sign the lease to move-in on future date, or the move-in date? Thanks.
Your domicile changes when you have both physically moved to the new state and established your intention to live there permanently. Thus the earliest possible date is the date your lease starts, but if you are still staying out of state, or traveling between your old and new states, you haven't changed domicile yet.

If you do move to CA the last week of December, you will have to file a CA tax form, but you aren't likely to have much income taxable to CA (maybe some end-of-year dividends and interest, and possibly your last paycheck of the year depending on pay schedules).
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seeker24
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Re: HSA allocation changes due to move to CA

Post by seeker24 »

grabiner wrote: Fri Nov 26, 2021 10:02 pm
Your domicile changes when you have both physically moved to the new state and established your intention to live there permanently. Thus the earliest possible date is the date your lease starts, but if you are still staying out of state, or traveling between your old and new states, you haven't changed domicile yet.

If you do move to CA the last week of December, you will have to file a CA tax form, but you aren't likely to have much income taxable to CA (maybe some end-of-year dividends and interest, and possibly your last paycheck of the year depending on pay schedules).
Thanks again. Based on that, I will set the lease start date in January.

Regarding HSA allocation, looks like I need to sell FXAIX in HSA and buy VXUS instead of VT ETF.

Thank you.
Sprucebark
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Re: HSA allocation changes due to move to CA

Post by Sprucebark »

And remember you have 10 days to change your driver license. They’ll be looking out for you to change your registration too.

https://www.chp.ca.gov/Notify-CHP/CHP-R ... Violators)
AnEngineer
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Re: HSA allocation changes due to move to CA

Post by AnEngineer »

grabiner wrote: Fri Nov 26, 2021 5:39 pm
zincTwo wrote: Wed Nov 24, 2021 7:56 pm
gobel wrote: Wed Nov 24, 2021 1:20 am
seeker24 wrote: Wed Nov 24, 2021 12:24 am One recommendation earlier by some of them is to move funds from FXAIX to VT ETF to minimize capital gains tax, once I move to CA.
You'd want to make any changes *before* becoming a resident of CA - if you have gains.
Agreed... but wouldn't it be that the changes need to be made in the year prior to becoming a resident? If OP sells now(Nov), becomes a CA resident on Dec.31... then I think CA rules win?
If you sell and move to CA later in the same year, the tax cost is minimal.

The way CA taxes part-year residents is that you compute your total income and determine what the tax would be on that income, then multiply by the fraction of income earned while a CA resident (or from a CA source while a non-resident). For example, if you have $45K in income before you move to CA and $45K after, your CA tax is half the tax on $90K. If you take an extra $10K capital gain while a CA nonresident, you now have $100K in total income, so your CA tax is 45% of the tax on $100K, which is slightly more because tax rates are progressive. But if you take that $10K capital gain while a CA resident, your CA tax is 55% of the tax on $100K, which is much more.

Also, CA allows you to carry over capital losses from before you were a resident. If you sell for a capital gain before becoming a resident, even in an earlier year, this will use up some of your loss carryover.
Note that this means you will face some capital gains tax on any HSA moves you make before going to CA.
danaht
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Re: HSA allocation changes due to move to CA

Post by danaht »

Yes, if I ever move back to CA I will make sure I sell all my ETFs in my HSA the year before I move to CA. Then - reinvest those into different but similar ETFs so that the cost basis starts over at a higher level. That's the most important thing you can do. Hopefully CA starts to recognize HSAs like the federal government before I decide to move back.
sandan
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Re: HSA allocation changes due to move to CA

Post by sandan »

danaht wrote: Sat Nov 27, 2021 7:42 pm Yes, if I ever move back to CA I will make sure I sell all my ETFs in my HSA the year before I move to CA. Then - reinvest those into different but similar ETFs so that the cost basis starts over at a higher level. That's the most important thing you can do. Hopefully CA starts to recognize HSAs like the federal government before I decide to move back.
I am thankful for this thread.
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