Moving to California - What to do with HSA?

[illumination]

I've heard this before, and it's a great idea. Just buy Berkshire Hathaway. Unless you sell shares, zero gains to report.

This is a terrible idea. A single company, even a conglomerate, it not a suitable replacement for a diversified fund. GE was once held in the same regard.

I'd be willing to roll the dice on Berkshire in a situation like this, but to each their own.

[Artsdoctor]

On the CA form, I have never entered any income associated with treasuries held in the HSA because they're not taxed. The comment above suggested that I should enter the treasury income (in the HSA, on the CA tax form) and then take it away.

I hold Fidelity's Intermediate Treasury Index fund, FUAMX. In 2022, 99.58% of dividend income was from U.S. government securities. But in 2021, it was just 93.63%. So for me, there's always a slight difference between the amount I add on CA 540 and the amount I subtract. Thus, I owe some small tax on the dividends.

So while using FUAMX mostly solves the tax problem, it doesn't solve the reporting or tracking problems.

Got it. Yes, I invested aggressively over many years in our HSAs, and dutifully declared income and gains every year. Now that I'm, ahem, older and my goal is different, I just buy T-bills so there's really no state tax lag. I use the Treasury Only money market fund at Fidelity for settlement purposes and I suppose there are a few cents that are taxable over the course of a year but not enough to declare. I could write in the T-bill interest and subtract it on the same line, and perhaps that would be the way that CA wants me to do it although I have not. It would make no difference in my tax liability. It's easy enough for me to change bookkeeping if I have to, but I don't see any compelling reason to do it.

As an aside, for Californians who are investing aggressively in their HSAs, you can certainly tax-loss harvest in your HSA. This might be pertinent to the OP. CA allows you to carryover losses from one year to the year. There's more bookkeeping but I didn't find it to be that onerous. If you decide to do it, I'd still be "tax efficient" since the account is taxable at the state (CA) level.

[miket29]

You still have to report dividends from a Treasury fund, even though they're not taxable in CA. The dividends are added and then subtracted on Schedule CA (540) California Adjustments.

I don't think [that's] correct. In CA you copy over your Federal AGI to the CA 540 form, and the AGI includes interest earned on Treasury funds and bills since they are taxable by the Federal gov't. There is no addition done for these amounts on CA (540) California Adjustments, it is already baked into the Federal AGI.

As Artsdoctor explained, dividends inside an HSA do not appear on your federal form and thus are not carried over to CA 540. You have to add them on Part II, line 3b, column C. Then, some portion of them (which may or may not be 100%) are subtracted on line 2b, column B.

thanks, learned something!

[Invest4lt]

Or you could use your HSA, while you live in CA, as part of your bond allocation. You could sell your positions and move into a TIPS or other Treasury Only fund before you move out there. Then you won't need to track since Treasury funds are state tax free.

This..Treasury notes could be a good option. The net taaxable amount for Cal would in the end come out to zero.

[exodusNH]

I've heard this before, and it's a great idea. Just buy Berkshire Hathaway. Unless you sell shares, zero gains to report.

This is a terrible idea. A single company, even a conglomerate, it not a suitable replacement for a diversified fund. GE was once held in the same regard.

I'd be willing to roll the dice on Berkshire in a situation like this, but to each their own.

If you go in with your eyes open, that's fine. But ~80% of their holdings are in 5 holdings, with Apple representing half. People complain that the the S&P 500 is too top heavy...

[dual]

I've heard this before, and it's a great idea. Just buy Berkshire Hathaway. Unless you sell shares, zero gains to report.

This is a terrible idea. A single company, even a conglomerate, it not a suitable replacement for a diversified fund. GE was once held in the same regard.

I disagree. It is a great idea. It gives you an equity exposure while minimizing the CA tax reporting. Look at the other ideas discussed: treasury securities, a treasury only money market fund. Over the past 10 years they have not kept up with inflation. BRK.B has had an annual return of 11.4% over the past 10 years. That was far above inflation.

https://www.netcials.com/stock-10-year- ... haway-Inc/

I’m not saying to put all your portfolio in BRK.B. My HSA is a small part of my total portfolio. But given the unique circumstances of a California HSA, I think BRK.B fills a necessary diversifier role.

Given the certainty of losing to inflation vs. a small chance of BRK.B going out of business, I will except the risk.

[grabiner]

I’m not saying to put all your portfolio in BRK.B. My HSA is a small part of my total portfolio. But given the unique circumstances of a California HSA, I think BRK.B fills a necessary diversifier role.

Given the certainty of losing to inflation vs. a small chance of BRK.B going out of business, I will except the risk.

There is a certainty of beating inflation available; TIPS yield about 2%. And TIPS have a tax advantage over Berkshire Hathaway stock; while you pay no tax on the dividends, you pay capital-gains tax when you sell the stock if you are still a CA resident.

The other advantage of holding TIPS in an HSA and stock in some other account, rather than the other way around, is that you reduce the risk that the HSA will exceed your medical expenses and make some of the withdrawals taxable.

Thus, if holding bonds is appropriate for you, it makes sense to hold TIPS or nominal Treasuries in your HSA in CA or NJ. If 100% stock is the right allocation, or you have a reason to hold bonds in a different account (TIAA Traditional Annuity, TSP G fund, a 401(k) with much better bond than stock options), then low-dividend stocks in an HSA are a good deal.

[CletusCaddy]

SCHG only pays 0.4% dividends, that’s 0.04% CA tax cost annually held in HSA. Pair it with a value index fund in your Roth and you can stay diversified, more so than BRK.

[exodusNH]

I've heard this before, and it's a great idea. Just buy Berkshire Hathaway. Unless you sell shares, zero gains to report.

This is a terrible idea. A single company, even a conglomerate, it not a suitable replacement for a diversified fund. GE was once held in the same regard.

I disagree. It is a great idea. It gives you an equity exposure while minimizing the CA tax reporting. Look at the other ideas discussed: treasury securities, a treasury only money market fund. Over the past 10 years they have not kept up with inflation. BRK.B has had an annual return of 11.4% over the past 10 years. That was far above inflation.

https://www.netcials.com/stock-10-year- ... haway-Inc/

I’m not saying to put all your portfolio in BRK.B. My HSA is a small part of my total portfolio. But given the unique circumstances of a California HSA, I think BRK.B fills a necessary diversifier role.

Given the certainty of losing to inflation vs. a small chance of BRK.B going out of business, I will except the risk.

As noted above, it's really a stock play of 5 companies. You can't diversify by taking a concentrated position in Apple, BoA, Coca-Cola, AmEx, and Chevron.

[illumination]

I've heard this before, and it's a great idea. Just buy Berkshire Hathaway. Unless you sell shares, zero gains to report.

This is a terrible idea. A single company, even a conglomerate, it not a suitable replacement for a diversified fund. GE was once held in the same regard.

I'd be willing to roll the dice on Berkshire in a situation like this, but to each their own.

If you go in with your eyes open, that's fine. But ~80% of their holdings are in 5 holdings, with Apple representing half. People complain that the the S&P 500 is too top heavy...

But that doesn't really paint the whole picture, that figure cited is for just the stocks they own. In addition to holding stock in publicly traded companies, they own many outright that's not part of that figure. Like a railway company worth over $30 billion, or an aerospace company worth almost $40 billion. So the 80% in 5 holdings is not really apples to apples to say a mutual fund where 80% of the holdings would be in just 5 stocks and that represented the total value. I also don't think the GE comparison is a good one, it's just a much more diverse group of holdings than General Electric. There's really no other company like Berkshire.

Here's a list of Berkshire holdings:

https://en.wikipedia.org/wiki/List_of_a ... e_Hathaway

I'm not making a case to buy Berkshire over index funds (I don't) but in a situation like this, I think it's very close to buying a mutual fund of sorts and its zero dividend policy has some unique upsides in certain situations if you wanted equity exposure to avoid some tax headaches. To each their own.

I would never advocate Berkshire over a Total Market fund for the bulk of someone's retirement or assets, but usually HSA accounts don't make up a huge part of one's portfolio and this is a unique situation. YMMV.

[dual]

Regarding TIPS in a CA HSA, after reading the threads on taxation of Tips in taxable accounts, it seems this would complicate tax reporting, rather than simplify it, which is a principal motive for using BRK.B. BRK.B generates no income until I sell it while every year TIPS generate interest and OID that I somehow I need to report to the state.

Further, at least in the past, BRK.B has had gains far above inflation. I know that there’s no guarantee of future returns, but it has rewarded me handsomely over the years that I’ve held it.

Edit. The interest and OID may not be taxable by California but I still have to report it and designate it as non-taxable on my tax return.

[willyd123]

I would tell your employer you are staying in NC or I'd find another job NOT in CA or NJ

[CFM300]

I just buy T-bills

I remember mervinj7's posts (like this one) on how to setup an auto-roll ladder at Fidelity, but the process always strikes me as more complicated than I'd like.

[Helium]

I've been using FUAMX and it's been doing terribly. Should I switch to FDLXX?

When I compare the two in Morningstar FDLXX performs so much better and it's just a MM fund.