Time for a taxable account? HSA?

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SDLinguist
Posts: 78
Joined: Wed Jan 31, 2018 2:39 pm

Time for a taxable account? HSA?

Post by SDLinguist » Thu Jul 12, 2018 1:23 am

Hi fellow bogleheads.

My wife and I recently made some changes for our near term planning (buying a place called renting) which has made us reevaluate where we keep our money. Along with that there have been changes to my ESPP for what I think is the better. All of this means we now have cash burning a hole in our pocket!

We decided to delay trying to buy since it really does not make any sense for us right now especially since being in SD it would mean pumping almost all the money we currently save in retirement accounts into mortgage instead.

We have about $50k now to move out of cash and into the market. Because of big raises at the end of 2017 we already maxed the Roths for 2018 in Jan and are on track to max both 401ks.

We both have individual HSAs through our work and each of us get 1k from our employer into them yearly. Both HSAs are through OptumBank.

1. I have been looking but I can't find what I would call a definitive answer on whether or not the employer contributions to the HSA count toward the $3450 individual limit.

2. Since we are in CA I guess the best thing to do is be as tax efficient as possible and go for long term equities?

3. With the remaining money the next thing would be a taxable account right? No more tax advantaged space for a W-2 worker without kids as far as I know.

nps
Posts: 588
Joined: Thu Dec 04, 2014 10:18 am

Re: Time for a taxable account? HSA?

Post by nps » Thu Jul 12, 2018 5:38 am

1. The employer's contribution counts against the limit

2. HSA earnings are taxed as regular income in CA so I would recommend you use them to help fill your bond allocation (if you have one) instead

3. Probably, unless you are planning on kids, or other future educational expenses for yourselves or your relatives

SDLinguist
Posts: 78
Joined: Wed Jan 31, 2018 2:39 pm

Re: Time for a taxable account? HSA?

Post by SDLinguist » Thu Jul 12, 2018 8:01 pm

nps wrote:
Thu Jul 12, 2018 5:38 am
1. The employer's contribution counts against the limit

2. HSA earnings are taxed as regular income in CA so I would recommend you use them to help fill your bond allocation (if you have one) instead

3. Probably, unless you are planning on kids, or other future educational expenses for yourselves or your relatives
Thank you for clarifying #1. I tried reading the IRS publication on HSAs and it wasn't clear to me after reading it. Maybe I just missed the section or the publication was just too IRSy for my understanding!

As to #2 why bonds? Since CA treats the HSA as a normal taxable account would not the normal advice be to use tax efficient equity funds instead? Like the advice that bonds should be kept in tax advantaged accounts like 401ks where the interest that bonds pay is sheltered from taxes.

Currently all our bond allocation is either in BND in my 401k or iShares Barclays aggregate bond fund etf AGG in the Roths.

Maybe we need to look into other bond funds?

Our AA is 80/20. In our ISP we have this set until age 35 (7 years from now) when we plan to move to 25% bonds and then to 30% at age 45 with a final move to 60/40 at age 55. Though I also think that this will probably change given the 27 year time span and all that can happen during that time!

Currently I mirror that AA in all our accounts but I think it might be better to rework the placement of funds to make it easier on my self for future maintenance which is a different question in and of itself.

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grabiner
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Re: Time for a taxable account? HSA?

Post by grabiner » Thu Jul 12, 2018 8:34 pm

SDLinguist wrote:
Thu Jul 12, 2018 8:01 pm
nps wrote:
Thu Jul 12, 2018 5:38 am
2. HSA earnings are taxed as regular income in CA so I would recommend you use them to help fill your bond allocation (if you have one) instead
As to #2 why bonds? Since CA treats the HSA as a normal taxable account would not the normal advice be to use tax efficient equity funds instead? Like the advice that bonds should be kept in tax advantaged accounts like 401ks where the interest that bonds pay is sheltered from taxes.
You can use Treasury bonds (including TIPS) in the HSA; they are exempt from CA tax.
Wiki David Grabiner

nps
Posts: 588
Joined: Thu Dec 04, 2014 10:18 am

Re: Time for a taxable account? HSA?

Post by nps » Thu Jul 12, 2018 8:50 pm

SDLinguist wrote:
Thu Jul 12, 2018 8:01 pm
As to #2 why bonds? Since CA treats the HSA as a normal taxable account would not the normal advice be to use tax efficient equity funds instead? Like the advice that bonds should be kept in tax advantaged accounts like 401ks where the interest that bonds pay is sheltered from taxes.
That is the normal advice for accounts that are taxable at the federal level. In this case we are talking about accounts that are tax-free at the federal level but taxable in California. Since California does not provide for special treatment of long term capital gains or qualified dividends, it's better to place your lower expected return (i.e. bond) assets there.

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