I’ve written previously about how folks who can afford to both contribute to a Health Savings Account (HSA) and pay their current out-of-pocket medical expenses from their checking account can use their HSA as a stealth retirement account. It’s better than either pre-tax or Roth retirement accounts because as long as you eventually use the money for health care expenses (including expenses accumulated over time) the money is never taxed. Contributions are pre-tax, earnings grow tax deferred, and withdrawals are also tax free as long as they are for qualified expenses. And in the “worst” case scenario where you end up with more in your HSA than you have medical expenses over your lifetime, (which is a good thing) you can withdraw for any reason after age 65 and simply pay tax (no penalty) on the withdrawal. That means it can function just like a pre-tax IRA, 401k, 403b, or 457b after age 65, only with some of it still being completely tax free for qualified withdrawals.
But there’s also a variation of this strategy that might work better for some folks (again, if they can afford to contribute to their HSA and still pay expenses from their checking account). With this strategy, you still try to max out your HSA contributions each year, but you do reimburse at least some of your out-of-pocket medical costs each year from your HSA. But you would only do this if you are not already maxing out your Roth contributions (IRA, 401k 403b, 457b) for the year. You would use the reimbursement from your HSA to then turn around and increase your Roth contributions for the year. In effect, you are “transferring” money from your HSA to your Roth, effectively getting the tax deduction for the HSA contribution but then also being able to contribute to a Roth that will never be taxed.
A dollar in an HSA and a dollar in a Roth account are close to equivalent (once they are in the account), as they both grow tax-deferred and can be withdrawn tax free. If you use this strategy to “transfer” money from your HSA to your Roth, you gain two big advantages and lose only one (likely smaller) one. What you gain is that withdrawals from Roth accounts don’t have to be for qualified expenses (like with an HSA), and Roth accounts can be left tax-free to your heirs (unlike an HSA). What you lose is that with an HSA, the entire balance (including any growth) is available for withdrawal for qualified expenses at any age (including before age 59.5). If it’s in a Roth, you can withdraw contributions before age 59.5 without tax or penalty, but you can’t get to the growth until age 59.5. So if you were to have large out-of-pocket medical expenses before age 59.5, you conceivably would have access to more tax-free money if you left it to grow in the HSA versus “transferring” it to a Roth.
Again, this strategy is only helpful if you are not already maxing out your Roth contributions for the year. While a fair number of people max out their Roth IRA each year, many people are not maxing out their 401k, 403b, or 457b, which often also have a Roth option. And, for K-12 educators, you have both the 401k/403b bucket and the 457b bucket, so you have a ton of room each year for potential Roth contributions. In 2026 if under 50, you have a $7,500 limit for IRA, $24,500 for 401k/403b, and another $24,500 for 457b – so a total of $56,500 (Roth and pre-tax combined). If you are over 50, that increases to a total of $73,600, and if you are age 60-63 it’s $80,100. Most educators are likely not hitting those numbers. By contributing to your HSA to get the tax deduction, reimbursing yourself for some expenses, and then using that amount to increase your Roth contributions, you are effectively getting the deduction for the pre-tax contribution to an IRA/401k/403b/457b and the never-taxed-again advantages of the Roth account. (And if you don’t have enough expenses to reimburse, the “extra” stays in the HSA just like with the stealth IRA strategy.)
As always when talking about HSAs, you have to evaluate your health insurance choices carefully. For some folks, choosing an HMO/PPO over an HSA-qualified HDHP will be the better choice, even without having access to an HSA. (But you have to do the math, the HDHP is better for many more people that most people realize once you factor in the premium savings and sometimes an employer contribution to the HSA.) If you do have an HSA-qualified HDHP, maxing out your HSA should be near the top of your investing priorities (second only behind contributing up to any employer match you might get for a 401k/403b/457b contribution). I would also suggest that you likely want to periodically transfer money from the HSA provider through your employer to Fidelity in order to invest your entire balance with lower fees.
Fisch Financial 