Californians (and NJans/Alabamans): What do you put in your HSA?

[AnonymousCoward]

Three states, California, New Jersey and Alabamans, do not conform to federal HSA legislation and therefore tax earnings from HSA accounts. This causes two difficulties:

• You have to pay taxes on the earnings (duh)
• Your custodian isn't required to send you any 1099s which makes filing state income taxes a pain.

So what's the best thing to put in the account that is tax efficient and not a giant pain in the butt? The options I see are:

• Invest in treasury bonds to which state taxes don't apply
• Invest in a tax efficient mutual fund and figure things out at tax time.

I'm leaning towards option two because treasury bonds aren't part of my planned allocation (I use a diversified intermediate term bond fund, VBIIX) and I already have a large enough bond allocation (I could adjust things in my other accounts though).

What do you Californians/New Jerseyans/Alabamans do?

edit: this thread is informative
edit2: Idaho != Alabama

[tesuzuki2002]

<-----   Californian here 

  I moved all my investments to single stocks that have no dividends...   I plan to hold until a year after I leave this state of CA so I won't have any gains to the state..   

Or unless California proceeds with not taxing HSA gains in the near future..

[dragoncar]

I do my 30 year treasuries there.  I need some tax exempt interest to pay off the monthly fees.  Really, it's ending up being a pain in the ass...