The (Shoe)box Strategy

A tried-and-true strategy for growing your HSA is shoeboxing your receipts, investing your funds, then reimbursing yourself in retirement (there’s no deadline for when you have to reimburse yourself for eligible expenses). If you’re attempting to minimize tax liability, the ability to generate income from your HSA by reimbursing yourself for prior, or current, medical expenses can be quite helpful. Additionally, HSAs have no required minimum distributions, and withdrawals from your HSA for medical events do not count as taxable income. This gives the savvy retiree an opportunity to balance HSA reimbursements and 401(k) withdrawals to minimize their taxable income.

Here’s the step by step game plan to employing the shoebox strategy;

1. Pay medical expenses out-of-pocket

By paying medical expenses out-of-pocket, you allow the funds in your HSA to continue to build and earn tax-free interest.

2. Archive your receipts

Keep track of your medical receipts, explanations of benefit and invoices by storing them online or in a "(shoe)box." Track your accumulated reimbursable expenses online, until you reach the desired limit.

3. Invest funds

Maximize your tax-free earning potential by investing HSA funds.

4. Cash in

Submit a reimbursement for accumulated qualified expenses and receive a tax-free payment for the amount of out-of-pocket expenses you paid.

This video by Health Savings Administrators does a great job of explaining how the (shoe)box strategy works.