I recently started an HSA. For federal income taxes this is a great deal because I get to contribute pre-tax and take tax-free distributions for medical expenses, or after age 65 I can take distributions with income tax like a 401(k).
However, I'm a resident of California, and they don't adhere to the federal rules for HSAs. For contributions, it's pretty straightforward, I just have to add that income back to be taxed at the state level. Additionally, according to Instructions for Schedule CA (540):
Interest or other earnings earned from a Health Savings Account (HSA) are not treated as taxed deferred. Interest or earnings in a HSA are taxable in the year earned.
So will my brokerage send me 1099s for interest, dividends, and capital gains in my HSA?
Further, let's say I turn 65 and take a distribution. California can't tax that money again, right? But what if I retire to another state with state income tax that doesn't tax HSA contributions or earnings? And although this doesn't apply to me, what about the opposite, if I were a resident of another state that adheres to the federal rules for HSAs, but then retired in California. Would I be able to avoid all state income tax on contributions, earnings, and distributions after age 65?