I live in California. During 2019 I contributed to a Health Savings Account; I didn’t take any distributions. I’m reading the 2018 instructions for Schedule CA—the 2019 instructions don’t seem to be online yet—and they say,
Enter in column C the interest you identified as tax-exempt interest on your federal Form 1040, line 2a, and which you received from […] Interest or other earnings earned from a Health Savings Account (HSA) are not treated as taxed [sic] deferred. Interest or earnings in a HSA are taxable in the year earned.
The HSA includes a “cash” component, which earned interest in 2019, and a mutual-fund component, which gained value through dividends and market gains. Are all three of these types of gains taxable in California even though I didn’t realize them by taking money out of the account?