Fidelity HSA California strategy

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dual
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Re: Fidelity HSA California strategy

Post by dual »

mervinj7 wrote: Wed Mar 03, 2021 2:05 pm No hassle. Fidelity will use auto-liquidate FDLXX for an auto-roll purchase. It's the same as a taxable brokerage account.
I called today and the rep said that fdlxx cannot be used as a core position. Yes it will auto-liquidate to fulfill an order but the proceeds will not go into it when the Tbill matures. That means the interest will accumulate in the core position, usually FDRXX, unless you go in and manually transfer it to FDLXX. Not a big problem with today’s effectively zero interest.
mervinj7
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Re: Fidelity HSA California strategy

Post by mervinj7 »

dual wrote: Tue Mar 09, 2021 10:35 pm
mervinj7 wrote: Wed Mar 03, 2021 2:05 pm No hassle. Fidelity will use auto-liquidate FDLXX for an auto-roll purchase. It's the same as a taxable brokerage account.
I called today and the rep said that fdlxx cannot be used as a core position. Yes it will auto-liquidate to fulfill an order but the proceeds will not go into it when the Tbill matures. That means the interest will accumulate in the core position, usually FDRXX, unless you go in and manually transfer it to FDLXX. Not a big problem with today’s effectively zero interest.
You can setup an auto invest each month to invest any interest into FDLXX. Once it's setup, then you are done. Although at current interest rates, it doesn't matter
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surtu
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Re: Fidelity HSA California strategy

Post by surtu »

martyboyle wrote: Tue Aug 04, 2020 9:16 pm
CFM300 wrote: Tue Aug 04, 2020 10:57 am
martyboyle wrote: Tue Aug 04, 2020 6:58 am
CFM300 wrote: Sat Feb 08, 2020 10:11 pm Like others, I invest in FUAMX (Fidelity Intermediate Treasury Bond Index Fund).

And have dividends and cap gains directed to FDLXX (Fidelity Treasury Only Money Market Fund).

I do the latter so that I don't create dozens of tax lots.
Why not just reinvest dividends back into Fuamx?
HSA's are taxable in California. FUAMX pays a dividend every month. I don't want a dozen tax lots created every year.

Same reason I don't reinvest dividends in my other taxable accounts.
Hmm I'm new to all this so looks like I'm not grasping this concept so I apologize for the basic questions. I'm in a similar situation in NJ.
You dont want to create tax lots from a treasury fund (FUAMX) but still buying another treasury fund (FDLXX) whenever those dividends come in. Just wasn't clear why the intermediate step.
Also looks like FDLXX is closed to new investors so I suppose not an option.
I posted about this over here: viewtopic.php?f=10&t=310358&p=5911185#p5911185 already, but according to https://fundresearch.fidelity.com/mutua ... /31617H300 FDLXX has been open since September 2020. Can anyone confirm if FDLXX is still closed? (I don't yet have an HSA established at Fidelity so I can't easily check myself).
phisher4
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Re: Fidelity HSA California strategy

Post by phisher4 »

In an attempt to resurrect this... Since California doesn't receive tax forms from Fidelity, how does CA know you have your HSA money invested in a dividend-generating account?

It seems that those who are ignorant of the fact that California requires HSA taxes simply don't pay their taxes -- and probably get away with it, since CA has no idea that the account is creating dividends. After an informal poll of others at my California workplace, almost no one is paying state HSA taxes on their dividends and capital gains because they simply didn't know about this tax.

My thought is that those at my workplace may be subject to a penalty if they are audited in the future; anyone know what the penalty might be?

Appreciate the bogleheads opinion on this topic.
calwatch
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Re: Fidelity HSA California strategy

Post by calwatch »

California does know contributions, since most employers contribute to HDHP HSAs and those would show up on a W-2. This is part of the revenue loss/gains when the annual bills to conform with federal law are introduced. https://www.ftb.ca.gov/tax-pros/law/leg ... 021820.pdf

In terms of dividends and capital gains, if there is no federal reporting, there is no state reporting. The vast majority of people use the HSA as a spending account for their health care and have minimal to no gains, since they put them in bank accounts. So if there was a penalty for them, it would be minimal. For someone who invests their HSA aggressively, less so. The penalty list is here: https://www.ftb.ca.gov/forms/misc/1024.html
phisher4
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Re: Fidelity HSA California strategy

Post by phisher4 »

calwatch wrote: Fri May 28, 2021 6:00 pm California does know contributions, since most employers contribute to HDHP HSAs and those would show up on a W-2. This is part of the revenue loss/gains when the annual bills to conform with federal law are introduced. https://www.ftb.ca.gov/tax-pros/law/leg ... 021820.pdf

In terms of dividends and capital gains, if there is no federal reporting, there is no state reporting. The vast majority of people use the HSA as a spending account for their health care and have minimal to no gains, since they put them in bank accounts. So if there was a penalty for them, it would be minimal. For someone who invests their HSA aggressively, less so. The penalty list is here: https://www.ftb.ca.gov/forms/misc/1024.html
I agree California "knows" that you contribute to the HSA (and taxes it!), but they don't know about your gains.

I really appreciate the link for the penalty list. From what I can tell the penalty is $50 (i.e. "failure to file a report for a tax-deferred account"); however, the list is long and convoluted and I may be wrong. Any tax professionals who can weigh in?
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grabiner
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Re: Fidelity HSA California strategy

Post by grabiner »

calwatch wrote: Fri May 28, 2021 6:00 pm California does know contributions, since most employers contribute to HDHP HSAs and those would show up on a W-2.
And if you don't make contributions by payroll deduction, then you deduct on your federal return, and this is one of the items specifically reported on your Schedule CA as an adjustment to federal income not allowed by CA.
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nalor511
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Re: Fidelity HSA California strategy

Post by nalor511 »

phisher4 wrote: Sat May 29, 2021 12:14 am
calwatch wrote: Fri May 28, 2021 6:00 pm California does know contributions, since most employers contribute to HDHP HSAs and those would show up on a W-2. This is part of the revenue loss/gains when the annual bills to conform with federal law are introduced. https://www.ftb.ca.gov/tax-pros/law/leg ... 021820.pdf

In terms of dividends and capital gains, if there is no federal reporting, there is no state reporting. The vast majority of people use the HSA as a spending account for their health care and have minimal to no gains, since they put them in bank accounts. So if there was a penalty for them, it would be minimal. For someone who invests their HSA aggressively, less so. The penalty list is here: https://www.ftb.ca.gov/forms/misc/1024.html
I agree California "knows" that you contribute to the HSA (and taxes it!), but they don't know about your gains.

I really appreciate the link for the penalty list. From what I can tell the penalty is $50 (i.e. "failure to file a report for a tax-deferred account"); however, the list is long and convoluted and I may be wrong. Any tax professionals who can weigh in?
My tax on ~$500 HSA divs this year was about $16. Not worth risking a $50 penalty to avoid paying $16.
mervinj7
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Re: Fidelity HSA California strategy

Post by mervinj7 »

phisher4 wrote: Sat May 29, 2021 12:14 am
calwatch wrote: Fri May 28, 2021 6:00 pm California does know contributions, since most employers contribute to HDHP HSAs and those would show up on a W-2. This is part of the revenue loss/gains when the annual bills to conform with federal law are introduced. https://www.ftb.ca.gov/tax-pros/law/leg ... 021820.pdf

In terms of dividends and capital gains, if there is no federal reporting, there is no state reporting. The vast majority of people use the HSA as a spending account for their health care and have minimal to no gains, since they put them in bank accounts. So if there was a penalty for them, it would be minimal. For someone who invests their HSA aggressively, less so. The penalty list is here: https://www.ftb.ca.gov/forms/misc/1024.html
I agree California "knows" that you contribute to the HSA (and taxes it!), but they don't know about your gains.

I really appreciate the link for the penalty list. From what I can tell the penalty is $50 (i.e. "failure to file a report for a tax-deferred account"); however, the list is long and convoluted and I may be wrong. Any tax professionals who can weigh in?
Does it take matter what the penalty is? Aren't you going to pay the taxes anyway?
phisher4
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Re: Fidelity HSA California strategy

Post by phisher4 »

mervinj7 wrote: Sun May 30, 2021 12:12 am
phisher4 wrote: Sat May 29, 2021 12:14 am
calwatch wrote: Fri May 28, 2021 6:00 pm California does know contributions, since most employers contribute to HDHP HSAs and those would show up on a W-2. This is part of the revenue loss/gains when the annual bills to conform with federal law are introduced. https://www.ftb.ca.gov/tax-pros/law/leg ... 021820.pdf

In terms of dividends and capital gains, if there is no federal reporting, there is no state reporting. The vast majority of people use the HSA as a spending account for their health care and have minimal to no gains, since they put them in bank accounts. So if there was a penalty for them, it would be minimal. For someone who invests their HSA aggressively, less so. The penalty list is here: https://www.ftb.ca.gov/forms/misc/1024.html
I agree California "knows" that you contribute to the HSA (and taxes it!), but they don't know about your gains.

I really appreciate the link for the penalty list. From what I can tell the penalty is $50 (i.e. "failure to file a report for a tax-deferred account"); however, the list is long and convoluted and I may be wrong. Any tax professionals who can weigh in?
Does it take matter what the penalty is? Aren't you going to pay the taxes anyway?
Well, maybe not... If the penalty of not paying the taxes on time is $50 (and this is the LAW), I may just not pay until much later due to the hassle.

This is not a moral or ethical issue; if I choose to pay later -- and pay the consequences -- I'm not doing anything untoward.

The problem is that I can't tell if it's really $50 or more than that.

Can anyone help here?
ma21n2
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Re: Fidelity HSA California strategy

Post by ma21n2 »

phisher4 wrote: Sun Jun 06, 2021 11:36 pm
mervinj7 wrote: Sun May 30, 2021 12:12 am
phisher4 wrote: Sat May 29, 2021 12:14 am
calwatch wrote: Fri May 28, 2021 6:00 pm California does know contributions, since most employers contribute to HDHP HSAs and those would show up on a W-2. This is part of the revenue loss/gains when the annual bills to conform with federal law are introduced. https://www.ftb.ca.gov/tax-pros/law/leg ... 021820.pdf

In terms of dividends and capital gains, if there is no federal reporting, there is no state reporting. The vast majority of people use the HSA as a spending account for their health care and have minimal to no gains, since they put them in bank accounts. So if there was a penalty for them, it would be minimal. For someone who invests their HSA aggressively, less so. The penalty list is here: https://www.ftb.ca.gov/forms/misc/1024.html
I agree California "knows" that you contribute to the HSA (and taxes it!), but they don't know about your gains.

I really appreciate the link for the penalty list. From what I can tell the penalty is $50 (i.e. "failure to file a report for a tax-deferred account"); however, the list is long and convoluted and I may be wrong. Any tax professionals who can weigh in?
Does it take matter what the penalty is? Aren't you going to pay the taxes anyway?
Well, maybe not... If the penalty of not paying the taxes on time is $50 (and this is the LAW), I may just not pay until much later due to the hassle.

This is not a moral or ethical issue; if I choose to pay later -- and pay the consequences -- I'm not doing anything untoward.

The problem is that I can't tell if it's really $50 or more than that.

Can anyone help here?
What about the “Fraud Penalty” listed on FTB 1024? (“Tax fraud is intentionally underreporting or failing to report income.”) On top of that, I don’t know if FTB 1024 includes criminal penalties, seeing as I don’t see any jail time listed.
phisher4
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Re: Fidelity HSA California strategy

Post by phisher4 »

Thanks -- I googled FTB 1024 and got the following reference chart: https://www.ftb.ca.gov/forms/misc/1024.pdf

It's still unclear to me what the penalty would actually be, since it's a vague government chart and the answer is likely buried within the lawbooks.

However, I'm relatively certain than thousands of California HSA investors are ignorant of the requirement to pay CA taxes on their HSA; and it appears that ignorance may actually be a legitimate excuse. Please correct me if I'm wrong. Would greatly appreciate the boglehead hive mind opinion on this!
calwatch
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Re: Fidelity HSA California strategy

Post by calwatch »

I would agree with this statement, but very few people invest their HSAs in anything more than savings accounts so the tax due on them would be zero or at most a couple of notches on the tax table. But no one here is going to tell you to ignore the law. After all, there are adjustments made for beverage recycling income on Schedule CA but I hazard to guess few people report that (and arguably it's a return to basis and not taxable anyway).
InvestUSA
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Re: Fidelity HSA California strategy

Post by InvestUSA »

CFM300 wrote: Sat Feb 08, 2020 10:11 pm Like others, I invest in FUAMX (Fidelity Intermediate Treasury Bond Index Fund).

And have dividends and cap gains directed to FDLXX (Fidelity Treasury Only Money Market Fund).

I do the latter so that I don't create dozens of tax lots.

You can't direct dividends to FDLXX until you already have a position in FDLXX, and you can't set FDLXX as your Core.

Once a year, I transfer money from an Optum HSA. The amount lands in the FDIC Core at Fidelity. I then make an annual purchase of FUAMX using the entire balance in the Core (which is the same as the amount I transferred from Optum), plus most, BUT NOT ALL, of the funds in FDLXX. You need to leave a bit in FDLXX otherwise the position is closed and your dividends from FUAMX will be directed to your Core, not FDLXX.
I transferred 2021 contributions from HealthEquity HSA to Fidelity HSA. Purchased $200 in FDLXX and the remaining balance in VTIP.

The 2 online options for Dividends and Capital Gains are: 1. Reinvest in Security (I assume this means VTIP) 2. Deposit to Core Account

How do I set to reinvest dividends to FDLXX (if FDLXX cannot be set as Core Account)?

Thank you!
CFM300
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Re: Fidelity HSA California strategy

Post by CFM300 »

InvestUSA wrote: Mon Feb 21, 2022 11:03 am The 2 online options for Dividends and Capital Gains are: 1. Reinvest in Security (I assume this means VTIP) 2. Deposit to Core Account
I have a third option -- directed -- where I then specify the fund where I want my dividends to go.

How long has it been since you established a position in FDLXX? Maybe the third option will appear a few days later? If it doesn't, just give Fidelity a call and they can either walk you through the set-up or figure out why that option isn't showing for you.
yobery
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Re: Fidelity HSA California strategy

Post by yobery »

CFM300 wrote: Mon Feb 21, 2022 1:27 pm
InvestUSA wrote: Mon Feb 21, 2022 11:03 am The 2 online options for Dividends and Capital Gains are: 1. Reinvest in Security (I assume this means VTIP) 2. Deposit to Core Account
I have a third option -- directed -- where I then specify the fund where I want my dividends to go.

How long has it been since you established a position in FDLXX? Maybe the third option will appear a few days later? If it doesn't, just give Fidelity a call and they can either walk you through the set-up or figure out why that option isn't showing for you.
Directed will show up as an option about 3 days after the fund is first purchase
InvestUSA
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Re: Fidelity HSA California strategy

Post by InvestUSA »

yobery wrote: Mon Feb 21, 2022 3:31 pm
CFM300 wrote: Mon Feb 21, 2022 1:27 pm
InvestUSA wrote: Mon Feb 21, 2022 11:03 am The 2 online options for Dividends and Capital Gains are: 1. Reinvest in Security (I assume this means VTIP) 2. Deposit to Core Account
I have a third option -- directed -- where I then specify the fund where I want my dividends to go.

How long has it been since you established a position in FDLXX? Maybe the third option will appear a few days later? If it doesn't, just give Fidelity a call and they can either walk you through the set-up or figure out why that option isn't showing for you.
Directed will show up as an option about 3 days after the fund is first purchase
Apparently, the third option (Directed) is only available for mutual fund positions (like FUAMX)

ETFs (VTIP in my case) only have two options: reinvest dividend back into security (VTIP) or Core (FDIC-INSURED DEPOSIT SWEEP)
Fidelity agent was not able to offer 3rd option for ETF
yobery
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Re: Fidelity HSA California strategy

Post by yobery »

InvestUSA wrote: Fri Feb 25, 2022 1:48 pm
yobery wrote: Mon Feb 21, 2022 3:31 pm
CFM300 wrote: Mon Feb 21, 2022 1:27 pm
InvestUSA wrote: Mon Feb 21, 2022 11:03 am The 2 online options for Dividends and Capital Gains are: 1. Reinvest in Security (I assume this means VTIP) 2. Deposit to Core Account
I have a third option -- directed -- where I then specify the fund where I want my dividends to go.

How long has it been since you established a position in FDLXX? Maybe the third option will appear a few days later? If it doesn't, just give Fidelity a call and they can either walk you through the set-up or figure out why that option isn't showing for you.
Directed will show up as an option about 3 days after the fund is first purchase
Apparently, the third option (Directed) is only available for mutual fund positions (like FUAMX)

ETFs (VTIP in my case) only have two options: reinvest dividend back into security (VTIP) or Core (FDIC-INSURED DEPOSIT SWEEP)
Fidelity agent was not able to offer 3rd option for ETF
That is indeed how it works at fidelity
wkbellows
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Re: Fidelity HSA California strategy

Post by wkbellows »

MotoTrojan wrote: Wed Feb 05, 2020 12:07 pm Caps gain from sales are a pain but it’s pretty easy to look at the total of 4x dividends a year and toss it in to TurboTax. I’ve never understood why people work so hard to avoid taxation in a CA/NJ HSA, unless treasuries fall within their desired AA regardless.
I don't understand how I will know all the other "boxes" that are normally on a Form 1099-DIV? Or, does California not care about any of those? All I need to do is add up the dividends and report it as Total Ordinary Dividends? THANKS FOR YOUR HELP. I'm in the same boat as others in CA and NJ.
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grabiner
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Re: Fidelity HSA California strategy

Post by grabiner »

Welcome to the forum!
wkbellows wrote: Fri Mar 29, 2024 8:02 pm
MotoTrojan wrote: Wed Feb 05, 2020 12:07 pm Caps gain from sales are a pain but it’s pretty easy to look at the total of 4x dividends a year and toss it in to TurboTax. I’ve never understood why people work so hard to avoid taxation in a CA/NJ HSA, unless treasuries fall within their desired AA regardless.
I don't understand how I will know all the other "boxes" that are normally on a Form 1099-DIV? Or, does California not care about any of those? All I need to do is add up the dividends and report it as Total Ordinary Dividends? THANKS FOR YOUR HELP. I'm in the same boat as others in CA and NJ.
You will get this information from your brokerage statements. If a mutual fund in your HSA pays a $100 dividend, you report this as a $100 adjustment to dividends on Schedule CA; CA doesn't care whether the dividend is qualified or non-qualified. (If the dividend is from Treasury interest in a fund that is more than 50% Treasuries, you don't report that dividend, as CA does not tax it.)

If you sell something in the HSA, you have to compute your capital gain, as the brokerage statement doesn't show it. You will then enter the sale on your CA Schedule D and carry over the adjustment to Schedule CA.
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single2019
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Re: Fidelity HSA California strategy

Post by single2019 »

grabiner wrote: Sat Mar 30, 2024 12:10 pm Welcome to the forum!
wkbellows wrote: Fri Mar 29, 2024 8:02 pm
MotoTrojan wrote: Wed Feb 05, 2020 12:07 pm Caps gain from sales are a pain but it’s pretty easy to look at the total of 4x dividends a year and toss it in to TurboTax. I’ve never understood why people work so hard to avoid taxation in a CA/NJ HSA, unless treasuries fall within their desired AA regardless.

I don't understand how I will know all the other "boxes" that are normally on a Form 1099-DIV? Or, does California not care about any of those? All I need to do is add up the dividends and report it as Total Ordinary Dividends? THANKS FOR YOUR HELP. I'm in the same boat as others in CA and NJ.
You will get this information from your brokerage statements. If a mutual fund in your HSA pays a $100 dividend, you report this as a $100 adjustment to dividends on Schedule CA; CA doesn't care whether the dividend is qualified or non-qualified. (If the dividend is from Treasury interest in a fund that is more than 50% Treasuries, you don't report that dividend, as CA does not tax it.)

If you sell something in the HSA, you have to compute your capital gain, as the brokerage statement doesn't show it. You will then enter the sale on your CA Schedule D and carry over the adjustment to Schedule CA.
With Fidelity HSA, you can see your capital gain/loss under closed positions.
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