Worth the hassle to open an HSA in California?

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grabiner
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Re: Worth the hassle to open an HSA in California?

Post by grabiner »

Spirit Rider wrote: Sat Sep 05, 2020 3:33 am
sailaway wrote: Fri Sep 04, 2020 11:37 pm As for the information, it really irks me that our HSA bank opened an office on Megacorp campus, but they still don't actually summarize this information for us on the year end statement
As big as California is, they still represent a small fraction of HSA Bank's or any other nationwide HSA custodian's account owners. I wouldn't be surprised if even CA only banks or credit unions providing HSA accounts don't provide such information.

Short of CA mandating reporting of HSA account earnings, there is very little motivation for HSA custodians to do so.
In fact, when I lived in NJ, TD Ameritrade once sent me a 1099 for my HSA, but then followed up with an apology because it probably confused too many people. The next year, even though I still lived in NJ, there was no 1099 and I had to go to the brokerage statements to find out how much to report in dividends.
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billthecat
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Re: Worth the hassle to open an HSA in California?

Post by billthecat »

whodidntante wrote: Sat Oct 19, 2019 9:58 am You shouldn't care what Optum offers for investment options because your money shouldn't be at Optum. I also have Optum as my employer blessed account. Here's what I do.

1) Contact payroll or use the online tool they provide to request 50% of your salary go to your HSA. This will probably cause you to hit the annual limit in the first paycheck. For some, it will take more paychecks. This will at least save you the Medicare tax on that money. You are going to hit the social security contribution limit regardless.
2) Wait for the company contribution to post.
3) Move all of the money to Fidelity, except for 0.02*. I like to use my once per year indirect rollover for this because it leaves no chance for Optum to screw it up. What I actually do is take a distribution via ACH, which even Optum can get right.
4) Then I follow the instructions on Fidelity's website to complete the rollover within 60 days. Actually it's more like within 60 minutes after I receive the funds.
5) Invest the money any way I like at Fidelity.

Alternatively, you can do a custodian to custodian transfer from Optum to Fidelity, but then you are subject to Optum's fees, slovenly speed, and lack of competency.

Once the money is a Fidelity, you can buy Treasuries at no cost, or buy a Treasury bond index fund that has lower expenses than the closest bond fund offering at Vanguard. Not that it matters because Vanguard doesn't offer HSAs. Sorry, I had to work in that dig for the Vanguard fanbois.

*-The two cents I leave at Optum is so I can say I gave them my two cents.
My plan is a variation of that. I’m staying with Optum while I’m working (invested in TSM), and when I quit / retire I’m going to leave California and then liquidate and rollover to Fidelity.
We cannot direct the winds but we can adjust our sails • Warning: you will succeed at whatever you focus on, good or bad
tesuzuki2002
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Re: Worth the hassle to open an HSA in California?

Post by tesuzuki2002 »

I would do it for that $750 alone!!!!

I live in CA and my employer is still anti-HSA. SO they choose to keep providing insurance plans that don't meet the deductible limits. This year it is set at $2700 so it misses the HDHP limit by $100. I think I'm one of the few at my company that wants the HSA so they just ignore me when I complain about it.
playtothebeat
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Re: Worth the hassle to open an HSA in California?

Post by playtothebeat »

This has been an interesting read as I’m in CA and contribute to an HSA. I need to go back to prior tax returns to see if my accountant missed something!
Im looking at my last quarterly statement (our HSA transferred from one administrator to another so I don’t have access to previous statements for the full year). All I see is “Interest Paid” of $0.40. I don’t see anything describing dividends.. I have roughly 35k total in the account broken out as follows: $30k in the “investment account” (25k in a Target Date Fund, $5K in money market), and $5k in Cash within the HSA itself (I.e. outside of “investments” and represents the funds I can readily spend).
I’m not seeing how I would get the necessary info for the tax forms (unless the year end statement shows something that a quarterly statement doesn’t).

I checked my 2nd HSA (From my prior employer, I never rolled it over to the new one). That one, with about 20k between a Bond Fund, a Money Market fund, and a Target Fund, does show “settled activity” that has dividends (looks like about $75 year to date, with dividends purchasing new shares as each settlement date has the same small amount as “cash dividend received” and “new shares purchased”).

Also, let’s say I decide to sell out of my existing investments and buy new investments within the HSA (say, sell my target index funds and buy a bond fund). Would that be considered a taxable event in CA or not since I’m not “liquidating” out of the HSA investment account? Just trying to figure out if I’m effectively “locked in” with current investment selections if I want to avoid taxable events.
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Re: Worth the hassle to open an HSA in California?

Post by tj »

What about employer / insurance company contributions to the HSA in CA/NJ? Should that also be reported as income on a CA return?
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grabiner
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Re: Worth the hassle to open an HSA in California?

Post by grabiner »

playtothebeat wrote: Sun Oct 04, 2020 12:22 pm This has been an interesting read as I’m in CA and contribute to an HSA. I need to go back to prior tax returns to see if my accountant missed something!
Im looking at my last quarterly statement (our HSA transferred from one administrator to another so I don’t have access to previous statements for the full year). All I see is “Interest Paid” of $0.40. I don’t see anything describing dividends.. I have roughly 35k total in the account broken out as follows: $30k in the “investment account” (25k in a Target Date Fund, $5K in money market), and $5k in Cash within the HSA itself (I.e. outside of “investments” and represents the funds I can readily spend).
I’m not seeing how I would get the necessary info for the tax forms (unless the year end statement shows something that a quarterly statement doesn’t).

I checked my 2nd HSA (From my prior employer, I never rolled it over to the new one). That one, with about 20k between a Bond Fund, a Money Market fund, and a Target Fund, does show “settled activity” that has dividends (looks like about $75 year to date, with dividends purchasing new shares as each settlement date has the same small amount as “cash dividend received” and “new shares purchased”).
The pre-transfer HSA should have similar records of reinvested dividends.
Also, let’s say I decide to sell out of my existing investments and buy new investments within the HSA (say, sell my target index funds and buy a bond fund). Would that be considered a taxable event in CA or not since I’m not “liquidating” out of the HSA investment account? Just trying to figure out if I’m effectively “locked in” with current investment selections if I want to avoid taxable events.
In CA's view, the HSA is just a brokerage account, so you would pay capital-gains tax as if you sold one mutual fund and bought another within the same brokerage account.
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nalor511
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Re: Worth the hassle to open an HSA in California?

Post by nalor511 »

Exchange fzrox for something else, and back if you wish, to reset the cost basis of your investment before you get to CA, assuming it's gone up, that is.

Otherwise the gains become taxable next time you sell.
tj
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Re: Worth the hassle to open an HSA in California?

Post by tj »

nalor511 wrote: Wed Nov 11, 2020 9:04 pm Exchange fzrox for something else, and back if you wish, to reset the cost basis of your investment before you get to CA, assuming it's gone up, that is.

Otherwise the gains become taxable next time you sell.
I honestly wonder about just buying BRK.B and not looking at it until I move out of California.

But then how do you handle the employer contributions? They are funded by pre-tax premiums.


I did open my HSA when I lived in CA before and had it during a few months of residency. I had no idea they treat it any differently, FTB never said anything. Maybe it just wasn't enough for them to bother with.
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grabiner
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Re: Worth the hassle to open an HSA in California?

Post by grabiner »

tj wrote: Wed Nov 11, 2020 8:15 pm What about employer / insurance company contributions to the HSA in CA/NJ? Should that also be reported as income on a CA return?
If you live in CA or NJ, this should already be reported on your W-2; your CA or NJ state wages will be higher than your federal wages. (Similarly, in NJ, if you purchase health insurance by payroll deduction, this is also taxable in NJ, and your W-2 wages will reflect this.) The states may not adjust for contributions made by the plan (say, for US government employees); you will need to adjust this yourself.

If you live in another state and pay CA or NJ non-resident tax, you need to correct your state wages for employer HSA contributions.
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grabiner
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Re: Worth the hassle to open an HSA in California?

Post by grabiner »

tj wrote: Wed Nov 11, 2020 9:09 pm I did open my HSA when I lived in CA before and had it during a few months of residency. I had no idea they treat it any differently, FTB never said anything. Maybe it just wasn't enough for them to bother with.
Since there is no Form 1099 issued, the FTB doesn't know about the interest or dividends in the HSA. However, it is your responsibility to report the correct information on your tax form, even if you don't have a Form 1099.

(In theory, the FTB could audit everyone who reports having an HSA and doesn't make any adjustments to interest income, but the amount at stake is likely not to be worth the cost of the audit, as most HSA investors only have a few dollars of interest which should be taxable in CA.)
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Re: Worth the hassle to open an HSA in California?

Post by JediMisty »

lakpr wrote: Fri Oct 18, 2019 7:54 pm California (and New Jersey too, where I live) does not recognize HSAs. Even if you don't withdraw from the HSA, you will still owe state taxes on the contribution and the growth.

The usual advice is to load HSA into Treasuries / Treasury funds, so both the contribution and growth is exempt from state taxation. Treat is as part of your bond allocation.
+1. Also live in NJ. After transferring from my employer HSA to my fidelity HSA, I invest in a treasury fund and count it as part of my bond allocation.
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Re: Worth the hassle to open an HSA in California?

Post by wwtraveler »

Someone poke some holes in my ideas, we will be going through something similar this upcoming year as our insurance changed and we now have an HSA option.

If you want market exposure maybe FNILX works as it seems to keep it's capital gain distributions in check somehow (last one was in 2018). Aren't there other funds by vanguard that are total market that have never had capital gains distributions? Yes there's dividends, but 1.5-2% in dividends on a HSA of what is the max, $7300 for families is $109.50 to $146.00 a year. That's not an amount anyone should sweat over paying taxes on each year.

What about covered call ETF's like QYLD or RYLD where distributions are partially or fully return of capital? Return of capital is not taxable and reduces cost basis is my understanding. 100% of distributions on RYLD for example in 2020 was considered return of capital. https://www.globalxetfs.com/content/fil ... m-8937.pdf For the capital gains let's say that same $7300 has now paid out $7300 return of capital and let's say it does this in 10 years, in some respects so what, it just paid itself out and if you don't ever sell it then there's no capital gains tax. The high payout may be a worthwhile "mill" to continue to adequately pay for medical reimbursements. Assume 10 years of $7300 x 10 years = $73K x 10% payouts = $7300/yr that you can use for bills without ever selling the original shares. (For the record I'm still confused what happens when a share pays out 100% of itself as a return of capital, what happens to the next payment, the tax basis goes negative?).

What about buying equities directly that do not and have not shown the propensity to pay dividends the two that come to mind are Amazon and Tesla. I haven't done this yet but I wonder if you go down the S&P500 list ordered by market cap and just pick out x # of non dividend holdings how that would work out, provided you believed in the companies.

Please poke holes!
nalor511
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Re: Worth the hassle to open an HSA in California?

Post by nalor511 »

I just buy VTI, VXUS, VEA, VWO, whatever I'm low on, and put the dividends on my state taxes at the end of the year. Less trouble than mucking around with individual stocks IMO
inbox788
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Re: Worth the hassle to open an HSA in California?

Post by inbox788 »

nalor511 wrote: Wed Nov 24, 2021 1:10 pm I just buy VTI, VXUS, VEA, VWO, whatever I'm low on, and put the dividends on my state taxes at the end of the year. Less trouble than mucking around with individual stocks IMO
I use Fidelity HSA and bought non-dividend paying Berkshire Hathaway so I don't have to deal with this recurring hassle aspect.
nalor511
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Re: Worth the hassle to open an HSA in California?

Post by nalor511 »

inbox788 wrote: Wed Nov 24, 2021 3:29 pm
nalor511 wrote: Wed Nov 24, 2021 1:10 pm I just buy VTI, VXUS, VEA, VWO, whatever I'm low on, and put the dividends on my state taxes at the end of the year. Less trouble than mucking around with individual stocks IMO
I use Fidelity HSA and bought non-dividend paying Berkshire Hathaway so I don't have to deal with this recurring hassle aspect.
People make too much of this - Fido tracks your divs, takes 2 seconds to fill in that extra line on CA taxes
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