“Shoebox” Strategy - HSA Hack
Health Savings Accounts (HSAs)
When you open a Health Savings Account (HSA), you can only use the money for approved healthcare costs. If you use it for other things, you must pay income tax plus a 20% penalty (no penalty starting at age 65). If the account owner dies, the spouse inherits the HSA and can use the money for healthcare without taxes or forced withdrawals, letting the money grow tax-free. If someone else inherits it, they must pay income tax and withdraw all the money at once. Because of this, HSAs are best used for healthcare expenses during retirement, not for estate planning.
HSA Annual Contributions
The annual family maximum contribution limit for Health Savings Accounts (HSAs) in 2025 is set at $8,550. Once you reach the age of 55, you become eligible to make an additional catch-up contribution of $1,000 per year. Additionally, there is a separate $1,000 catch-up contribution available for the spouse when they turn 55; however, this amount must be contributed to the spouse’s own individual HSA account rather than being combined with the primary account. See the example below for more detail.
Common Medical Expenses Covered under your HSA
Common or routine medical expenses, OTC medications, emergency medical expenses, mental health expenses, long term care insurance premiums (LTC premium would no longer be tax deductible), COBRA premiums, dental and vision care.
Common items not covered are gym memberships, nutritional supplements, and cosmetic procedures your doctor doesn’t consider medically necessary.
Medicare / HSA Coverage
HSAs can pay for deductibles, copays, coinsurance, and premiums for Medicare Parts A, B, C (Medicare Advantage), and D (prescription drugs), but not for Medigap (supplemental policy) premiums. See medicare.gov for more information. Because Part B is automatically taken from your Social Security check, you can pay yourself back afterward.
“Shoebox” Strategy: Turn your HSA into a Tax-Free Retirement Account
Keep receipts for all qualified medical expenses.
“Shoebox” Strategy
Instead of using your HSA to pay for a medical expense right away, you pay for it out-of-pocket and keep the receipt. Archive your receipts somewhere safe, preferably digitally, where you can access them years down the road. Currently, there is no set time limit for reimbursing prior qualified healthcare expenses, provided that the expense occurred after the HSA account was opened and became active. This policy allows for greater flexibility in managing and submitting these reimbursements, giving account holders more control over the timing and coordination of their healthcare expense claims.
Invest your HSA in a growth portfolio, since you now have a longer-term horizon for the funds.
Later in retirement, utilize your saved receipts for eligible expenses and withdraw the money tax-free to use however you want. For example, you could buy a car with HSA funds linked to past medical costs.
Starting at age 65, you can use HSA funds for non-medical expenses without penalties. The HSA works like a Traditional IRA with tax-deferred growth and no withdrawal penalty, with the benefit of having no required minimum distributions (RMDs). Using the "shoebox" strategy, it can also provide tax-free withdrawals, similar to a Roth IRA, by using saved receipts or paying for current qualified healthcare expenses.
HSAs - Triple Tax Threat (Sample Illustration)
Tax Deductible
Tax Deferred
Tax Free Withdrawals*
* As long as the IRS-qualified medical expenses were incurred after your HSA was established, you can pay them or reimburse yourself with HSA funds at any time. (Keep receipts)
Sample Clients Age 50
Max out HSA contributions until retirement. (15 years)
Pay for medical expenses out-of-pocket. (leave HSA invested)
Keep receipts for all qualified medical expenses.
In retirement, utilize saved receipts for tax-free withdrawals.
Assume a 6% annual growth rate, 35% marginal tax rate and 20% long term capital gains rate.
$76,702 in Tax Benefits
$55,580 in tax deductible contributions.
$21,122 in tax deferred growth.
In addition, unlike a 401k the withdrawals in retirement could be tax free with no required minimum distributions (RMDs).
Serves as a valuable tax diversification strategy, especially if you experience years with higher expenses or if tax rates happen to increase. This approach provides the option to withdraw funds tax-free from your HSA, rather than pulling money from your IRA, which would be subject to taxation.
Consult with a qualified tax advisor about your own personal situation.
Ville Wealth Management is a Registered Investment Adviser in the state of Ohio. Advisory services are only offered to clients or prospective clients where Ville Wealth Management and its representatives are properly registered or exempt from registration. “Likes” should not be considered a positive reflection of the investment advisory services offered by Ville Wealth Management. Brian Jaros is an investment adviser representative of Ville Wealth Management. The firm is a registered investment adviser and only conducts business in jurisdictions where it is properly registered, or is excluded or exempted from registration requirements. Registration as an investment adviser is not an endorsement of the firm by securities regulators and does not mean the adviser has achieved a specific level of skill or ability. The information presented on this post is believed to be factual and up-to-date, but we do not guarantee its accuracy and it should not be regarded as a complete analysis of the subjects discussed. Comments should not be construed as an offer to buy or sell, or a solicitation of an offer to buy or sell the investments mentioned. A professional adviser should be consulted before implementing any of the strategies discussed. Investments involve varying degrees of risk, and there can be no assurance that any specific investment or strategy will be suitable or profitable for a client's portfolio. All investment strategies can result in profit or loss.
