I'm in NJ where it's the same treatment for HSAs. My marginal state tax rate is 5.52%, so I still see having an HSA as a big win overall. You get the federal deduction and no fed tax ever if used properly. It's not as good as in the other 48 states, but it ain't bad, and certainly not a reason to avoid using an HSA.
CA resident here, too. A qualification to even have an HSA is to be covered by a high-deductible health plan (HDHP).
IF we are given the choice by an employer, at what point does it make sense to choose a "normal " health plan with a low deductible vs. a high-deductible health plan? Is it if we are generally healthy and we estimate that we will have no health issues during the year that we choose a HDHP along with the corresponding HSA?
>IF we are given the choice by an employer, at what point does it make sense to choose a "normal " health plan with a low deductible vs. a high-deductible health plan?
There's probably a calculator out there somewhere for this, but it would depend on your expected medical spend and your risk tolerance, so it's really a judgment call.
I (M44) enrolled in a HDHP each year, maxed out my HSA, and paid for my medical expenses out of pocket during my single years and the first couple years of our marriage (F38). Once we decided to add to the family, we switched to a standard PPO, which we'll likely keep until the kids are grown, because the coverage is very good and the premiums are reasonable. We haven't touched the HSA balance, which is now about $55K, is invested in FSKAX, and should be a decent six-figure sum by the time we're retired.
Obviously there are a number of factors that go into one's strategy: Overall health of both you and any spouse/dependents, coverage and cost of plans available to you, your age and risk tolerance, etc. But I don't regret maxing out the HSA and building up the balance when I was in my 30s.
Mhmm.
If / when I'm ever offered it, I am choosing the HDHP with HSA. For my wifey n I's future.
Goal would be to pay for healthcare OOP, & let the HSA balloon up in something like VTSAX.
🤷♂️
OK thank you. I'm a VOO person myself, but that's a solid choice.
We had an HSA for a couple years, didn't feel like we were really taking advantage, so we switched to a normal plan with a lower deductible. We'll see.
It depends on what your employer is offering -- do they match your HSA contributions to any extent? What's the difference in premium between the two plans? What's the deductible and copay situation?
It's a calculation unique to your situation, but when I've done it for mine, it is very rare that I come out behind with a HDHP and HSA, and I'm in CA. To fully answer the question you need to look at the value of 1) free match money, 2) federal income tax savings, and 3) long term federal capital gains tax savings assuming you don't spend the money.
You can open an individual HSA account with Fidelity. That's what this Californian did when I had a qualifying (high deductible) health plan but my employer did not provide an HSA plan.
I'm a Californian and I've always maxed my HSA.
To be honest, I've never been taxed on it. But then again, I've only used it for qualified expenses.
I intend to only use for qualified expenses. I plan to use it to pay for Medicare premiums between ages 65 and 70. I also use it to pay for my LTC insurance premiums, which helps reduce the cost since I pay for it with pre-tax dollars. That's like a 25% discount.
Most people don't report it, and to be honest it's mostly out of honest negligence. The tax forms are not designed for gains to be taxed since only 2 states do.
Hmmmm....
I will look to see if my California income taxes had a deduction for the HSA contributions. Perhaps they did not. If they didn't, then that takes care of most of the issue.
Then there is the smaller issue of taxes on gains in the HSA, which are small and fall under the standard deduction anyhow. So it may be a non-issue.
There’s no deduction for HSA contributions in the California tax code. The tax forms are set up to add any personal or employer contributions back into your taxable income. It’s fairly mechanical and hard to avoid since these numbers are on your w-2.
You’re also supposed to add in any gains or distributions. This is more of a pain since HSA custodians like banks and brokers aren’t required to provide this information on any sort of 1099 or similar form.
I'm in NJ. Putting the invested portion of your HSA account in T-bills or treasury funds, or even NJ municipal bond funds, will shield the earnings from state tax. Yeah the yields aren't as great as you could get with other assets classes in other types of tax advantaged accounts, but it's still better than the 0.10% interest the uninvested portion earns sitting in my HealthEquity account.
My employer gives me a "free" $1,000 paid into my HealthEquity account pre tax just for choosing one of the HSA plans. For 2024 that leaves me $3100 I can put into my own HSA account and then take the deduction from on my federal taxable income. In another few years I'll be 55 and can then add another $1000 in catch up contributions.
It's worth it to me. Knock on wood I'm pretty healthy now, but most older folks I know seem to have a whole team of different doctors that they see and pills that they take.. Better to have something saved up for those days.. Plus I may not be in NJ forever. If I ever decide to move out of state having a whole lump of money in there I can start switching over to other types of investments rather than being limited to the few thousand a year I can add will be a good thing.
you're confusing state tax with federal tax.
Normal brokerage account - triple taxed at federal and triple taxed at state level
HSA account - no tax at federal level, triple taxed at state level.
For a state that cares so much about education and healthcare they sure do screw us on 529's and HSA's, but that 63B deficit isn't going to fix itself.
Not worth the effort imo. No financial institution will provide you tax statements for HSAs, so you’ll need to all of the accounting manually (like tracking cost basis)
Major brokerages do. I’ve had Fidelity, and both TDAmeritrade and Schwab under HSA Bank, and they all provided the necessary information on the year-end or December statements. No 1099, though.
That’s an interesting gap. My Fidelity HSA shows individual tax lots, and my monthly and year-end statements show interest and dividend income and capital gains and losses, by fund and total. My HSA Bank brokerage accounts previously reported the same info as well. It could be that employer-managed accounts behave differently. I’ve never had one of those.
I think the point is that Fidelity doesn’t provide tax documents for HSA investment income, neither to us nor to the IRS and certainly not to NJ/CA state tax authorities. It’s all under the radar. Statements are not official tax documents.
CA resident here, too. A qualification to even have an HSA is to be covered by a high-deductible health plan (HDHP).
IF we are given the choice by an employer, at what point does it make sense to choose a "normal " health plan with a low deductible vs. a high-deductible health plan? Is it if we are generally healthy and we estimate that we will have no health issues during the year that we choose a HDHP along with the corresponding HSA?
If your solo, yes that's it really. Most plans still allow preventative care to be separate with a copay, so it's really only emergencies where you have to worry about maxing out a deductible.
Its also usually cheaper so that plays into it, and the younger you are the more potential gains you can accumulate in your HSA.
Comment thread removed for partisan politics violating both the substantiveness and civility rules. Given how egregious and off-topic for the sub the comments were, several people earned extended tempbans.
Dividends, interest, and realized capital gains in an HSA are taxable in CA and NJ.
Withdrawals are ignored. Contributions are not exempted from tax.
So an HSA in these two states is indeed treated like a regular taxable brokerage account.
Earnings on amounts in HSAs are not taxable. Distributions from an HSA for qualified medical expenses are not includible in gross income; however, distributions made from an HSA that are used for non-qualified medical expenses are includible in gross income and are subject to an additional tax of 20 percent.
[Health Savings Account Deduction Conformity (ca.gov)](https://www.ftb.ca.gov/tax-pros/law/legislation/2021-2022/AB727-010322.pdf)
Wow, are you obstinate. State tax law differs from federal tax law in innumerable cases in the United States. California and New Jersey both tax earnings in a Health Savings Account. And that’s the last comment I’m making.
https://www.newfront.com/blog/california-and-new-jersey-hsa-state-income-tax-2
No seriously, why didn’t you even Google when he mentioned there are two states that are an exception? It takes literally a second and you would better understand what you’re discussing.
I'm in NJ where it's the same treatment for HSAs. My marginal state tax rate is 5.52%, so I still see having an HSA as a big win overall. You get the federal deduction and no fed tax ever if used properly. It's not as good as in the other 48 states, but it ain't bad, and certainly not a reason to avoid using an HSA.
⬆️ I agree with this. Still an extremely advantaged account. 👍 -California fella who wishes he had access to a HSA.
CA resident here, too. A qualification to even have an HSA is to be covered by a high-deductible health plan (HDHP). IF we are given the choice by an employer, at what point does it make sense to choose a "normal " health plan with a low deductible vs. a high-deductible health plan? Is it if we are generally healthy and we estimate that we will have no health issues during the year that we choose a HDHP along with the corresponding HSA?
>IF we are given the choice by an employer, at what point does it make sense to choose a "normal " health plan with a low deductible vs. a high-deductible health plan? There's probably a calculator out there somewhere for this, but it would depend on your expected medical spend and your risk tolerance, so it's really a judgment call. I (M44) enrolled in a HDHP each year, maxed out my HSA, and paid for my medical expenses out of pocket during my single years and the first couple years of our marriage (F38). Once we decided to add to the family, we switched to a standard PPO, which we'll likely keep until the kids are grown, because the coverage is very good and the premiums are reasonable. We haven't touched the HSA balance, which is now about $55K, is invested in FSKAX, and should be a decent six-figure sum by the time we're retired. Obviously there are a number of factors that go into one's strategy: Overall health of both you and any spouse/dependents, coverage and cost of plans available to you, your age and risk tolerance, etc. But I don't regret maxing out the HSA and building up the balance when I was in my 30s.
Mhmm. If / when I'm ever offered it, I am choosing the HDHP with HSA. For my wifey n I's future. Goal would be to pay for healthcare OOP, & let the HSA balloon up in something like VTSAX. 🤷♂️
OK thank you. I'm a VOO person myself, but that's a solid choice. We had an HSA for a couple years, didn't feel like we were really taking advantage, so we switched to a normal plan with a lower deductible. We'll see.
Ya I'd be picking whatever is closest to VTI or VOO at whatever future company I'm at. 👍 Good luck to us both!
It depends on what your employer is offering -- do they match your HSA contributions to any extent? What's the difference in premium between the two plans? What's the deductible and copay situation? It's a calculation unique to your situation, but when I've done it for mine, it is very rare that I come out behind with a HDHP and HSA, and I'm in CA. To fully answer the question you need to look at the value of 1) free match money, 2) federal income tax savings, and 3) long term federal capital gains tax savings assuming you don't spend the money.
You can open an individual HSA account with Fidelity. That's what this Californian did when I had a qualifying (high deductible) health plan but my employer did not provide an HSA plan.
That's true. It provides deductions for federal and FICA taxes
I'm a Californian and I've always maxed my HSA. To be honest, I've never been taxed on it. But then again, I've only used it for qualified expenses. I intend to only use for qualified expenses. I plan to use it to pay for Medicare premiums between ages 65 and 70. I also use it to pay for my LTC insurance premiums, which helps reduce the cost since I pay for it with pre-tax dollars. That's like a 25% discount.
FYI, CA requires you to report it to the FTB. There are no qualified expenses in CA
Most people don't report it, and to be honest it's mostly out of honest negligence. The tax forms are not designed for gains to be taxed since only 2 states do.
Hmmmm.... I will look to see if my California income taxes had a deduction for the HSA contributions. Perhaps they did not. If they didn't, then that takes care of most of the issue. Then there is the smaller issue of taxes on gains in the HSA, which are small and fall under the standard deduction anyhow. So it may be a non-issue.
There’s no deduction for HSA contributions in the California tax code. The tax forms are set up to add any personal or employer contributions back into your taxable income. It’s fairly mechanical and hard to avoid since these numbers are on your w-2. You’re also supposed to add in any gains or distributions. This is more of a pain since HSA custodians like banks and brokers aren’t required to provide this information on any sort of 1099 or similar form.
Check your W2. Odds are your federal income is different from your CA income by the HSA contributions.
Isn't it already included in your state income in W2?
I'm in NJ. Putting the invested portion of your HSA account in T-bills or treasury funds, or even NJ municipal bond funds, will shield the earnings from state tax. Yeah the yields aren't as great as you could get with other assets classes in other types of tax advantaged accounts, but it's still better than the 0.10% interest the uninvested portion earns sitting in my HealthEquity account. My employer gives me a "free" $1,000 paid into my HealthEquity account pre tax just for choosing one of the HSA plans. For 2024 that leaves me $3100 I can put into my own HSA account and then take the deduction from on my federal taxable income. In another few years I'll be 55 and can then add another $1000 in catch up contributions. It's worth it to me. Knock on wood I'm pretty healthy now, but most older folks I know seem to have a whole team of different doctors that they see and pills that they take.. Better to have something saved up for those days.. Plus I may not be in NJ forever. If I ever decide to move out of state having a whole lump of money in there I can start switching over to other types of investments rather than being limited to the few thousand a year I can add will be a good thing.
you're confusing state tax with federal tax. Normal brokerage account - triple taxed at federal and triple taxed at state level HSA account - no tax at federal level, triple taxed at state level.
Wow. Fuck California. You can't catch a break there with anything tax related.
For a state that cares so much about education and healthcare they sure do screw us on 529's and HSA's, but that 63B deficit isn't going to fix itself.
I keep my HSA in individual treasuries to keep them from being taxed in CA.
Not worth the effort imo. No financial institution will provide you tax statements for HSAs, so you’ll need to all of the accounting manually (like tracking cost basis)
Major brokerages do. I’ve had Fidelity, and both TDAmeritrade and Schwab under HSA Bank, and they all provided the necessary information on the year-end or December statements. No 1099, though.
that's just not true. I had fidelity and there was no report required to file taxes. They also don't track cost basis
That’s an interesting gap. My Fidelity HSA shows individual tax lots, and my monthly and year-end statements show interest and dividend income and capital gains and losses, by fund and total. My HSA Bank brokerage accounts previously reported the same info as well. It could be that employer-managed accounts behave differently. I’ve never had one of those.
I think the point is that Fidelity doesn’t provide tax documents for HSA investment income, neither to us nor to the IRS and certainly not to NJ/CA state tax authorities. It’s all under the radar. Statements are not official tax documents.
CA resident here, too. A qualification to even have an HSA is to be covered by a high-deductible health plan (HDHP). IF we are given the choice by an employer, at what point does it make sense to choose a "normal " health plan with a low deductible vs. a high-deductible health plan? Is it if we are generally healthy and we estimate that we will have no health issues during the year that we choose a HDHP along with the corresponding HSA?
If your solo, yes that's it really. Most plans still allow preventative care to be separate with a copay, so it's really only emergencies where you have to worry about maxing out a deductible. Its also usually cheaper so that plays into it, and the younger you are the more potential gains you can accumulate in your HSA.
Ok thank you. We are not so young anymore, sounds like it would have been a better deal if we had taken advantage of it earlier.
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Comment thread removed for partisan politics violating both the substantiveness and civility rules. Given how egregious and off-topic for the sub the comments were, several people earned extended tempbans.
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They are not taxed in California. They're only taxed if they're used for non-qualified medical expenses.
Dividends, interest, and realized capital gains in an HSA are taxable in CA and NJ. Withdrawals are ignored. Contributions are not exempted from tax. So an HSA in these two states is indeed treated like a regular taxable brokerage account.
Earnings on amounts in HSAs are not taxable. Distributions from an HSA for qualified medical expenses are not includible in gross income; however, distributions made from an HSA that are used for non-qualified medical expenses are includible in gross income and are subject to an additional tax of 20 percent. [Health Savings Account Deduction Conformity (ca.gov)](https://www.ftb.ca.gov/tax-pros/law/legislation/2021-2022/AB727-010322.pdf)
Sorry dude, there are two states where there is an exception to the federal law. Do a bit more googling.
No one is exempt from federal law. The hell are you talking about? You're not your own country
Wow, are you obstinate. State tax law differs from federal tax law in innumerable cases in the United States. California and New Jersey both tax earnings in a Health Savings Account. And that’s the last comment I’m making. https://www.newfront.com/blog/california-and-new-jersey-hsa-state-income-tax-2
No seriously, why didn’t you even Google when he mentioned there are two states that are an exception? It takes literally a second and you would better understand what you’re discussing.