GSE vs TBill for HSA in CA ?

[mikebh]

hi all,

Which investment to use for HSA in California? that taxes HSA as ordinary income, or about 10% for me

Some new GSE (Agency) that are State tax exempt (FHLB, FFCB, and TVA) about 1% yield higher vs TBill or 6.5% vs 5.5%
I'm looking for 1-10 years to grow in the HSA.
My assumptions:
1. to use GSE as it pays 1% higher (or about 20% more) vs TBills (17-26 weeks)
2. as GSE is callable I expect to get my principal back way sooner, in 1-3 years, as I assume that Fed rates will be lower 5% in an year or two and GSE will just make the call to refi for lower future rate. So I don't stuck for 20-30 years term
3. if Fed will keep the rate high, then GSE unlikely to make the call and I will get stuck for longer term, I might even get lower rate vs future higher rate. Once Fed rate was 18%, so never say never ...

If to go with TBills then to make a ladder 8 weeks, 17 weeks, 26 weeks, also upon new tax year HSA contribution to buy new TBills, or GSE

it's unique situation with so high TBils, GSE rates vs Stock market uncertainty and tax advantage for TBills / GSE

Anything better to use for HSA for 5-15 years term?

thanks

[Artsdoctor]

It depends on when you'd like (or need) to spend from the HSA. If you don't think you'll need the funds for years and you'd like to keep bookkeeping simple, you can always build a TIPS ladder. Or, if you're comfortable with mutual funds/ETFs, you can invest in Vanguard's TIPS ETF.

[bd7]

Make sure your GSE bonds are actually state-tax exempt as not all are. I'm doing this in my CA HSA, I'm using FDLXX (treasury-only MM) plus some regular treasuries plus some GSE bonds of 5 to 10 year duration. I'm not so sure interest rates will be coming right back down in the near future, so I'm not so terrified of suddenly getting all my cash back with nowhere to invest it. That's not the worst problem in the world BTW. I worry more about being stuck for decades, so I forego the few additional tenths of a percent.

[mikebh]

thanks for the reply
I went 25% with GSE CA State exempt 25Y call in 1Y and the rest for 17 weeks TBill

I hope to not draw from my HSA this year, as I have FSA
the next year I'll see in Jan what to do? also the plan to get more contributions to the HSA.

I think we will see some bottom before TBills rate will go lower and Stock to go up, maybe in 6 - 12 months
I expected this to happen by end of this years, but looks like it will take more time, so I "hedge" in HSA, maybe later to invest into S&P 500 ETF some portion ?