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PaperclipPerfector  5d ago (text post)   1867 thread views

Small-Scale Question Sunday for September 28, 2025

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The so-called “Shoebox Strategy” for an HSA seems to me to be strictly wrong for most people:

  1. If you execute the shoebox strategy, your money will remain in the HSA to grow “probably, hopefully, mostly tax-free” and you will be responsible for storing the receipts for more years than you would otherwise.
  2. If you instead cash out the amount right away and then coincidentally make a Roth contribution of an equal amount, then your money will be growing “surely tax-free”, which is generally better, and you get to immediately start the 7-year timer to be allowed to throw away your receipts.
  3. If you are already maxing out every tax-advantaged channel, and so cannot implement strategy (2), you should at least consider just withdrawing it and making a straight-up investment in some tax-efficient growth asset, since you're probably in a position to take advantage of the “surely tax-free” growth of the death basis step-up.

The only case I can see where the “shoebox strategy” wins over (2) is if you anticipate HSA exhaustion before age 60, and the only case I can see where it wins over (3) is if you anticipate HSA exhaustion before death.

Am I missing anything else here?

⸻

EDIT: just to be clear, by “strictly wrong” I mean “strictly beat by another strategy”, not “strictly beat by the default 'stupid' strategy of making the withdrawal immediately and keeping the proceeds in a 0% interest checking account or taxable savings account”.

I am not very up on Roth stuff, but wpuld things change if receipt storage were completely trivial? The way my, and I assume nearly all, HSA works is that I submit receipts to the conpany that manages the HSA, and then those credits for withdrawal and ready for me whenever I want to use them. There is no receipt tracking because I just submit immediately.

would things change if receipt storage were completely trivial

Not much. Receipt storage is nearly trivial anyway. There's still a financial advantage to my strategy for anyone who doesn't fully exhaust their HSA by the time they die (as well as anyone who doesn't expect to fully exhaust their HSA by age 60, and isn't currently saturating every Roth contribution channel), I claim.

I submit receipts to the conpany that manages the HSA, and then those credits for withdrawal and ready for me whenever I want to use them

You're liable to show your receipts to the IRS in case of an audit, which could be up to 7 years after you get reimbursed / make the withdrawal. Are you sure you'll be using this HSA provider for that long? If you're burning your paper copies, you're vendor-locking yourself.

And, if you are delaying your withdrawals (so-called shoebox strategy, the topic at hand), are you sure your HSA provider keeps receipts for 7 years after the withdrawal date, not just 7 years after you submitted the receipt?

Yes, I am 100% sure that HSA providers used by big companies have procedures that will guarantee everything is fine forever. I'm more interested by the financial argument than a receipts argument.

anyone who doesn't fully exhaust their HSA by the time they die

Is that actually a meaningfully large group of people? I spend something like half to 2/3 of my annual HSA contribution every year, and I'm only 40. Odds are very strong that I'll empty the thing before I die, because my healthcare costs will go up and I won't be contributing any more. I didn't get the impression that I was a particularly isolated case, either.

Odds are very strong that I'll empty the thing before I die

Even if you expect to exhaust your HSA before you die, my proposed strategy still either beats or ties the “shoebox strategy” as long as you anticipate your HSA lasting through age 60, you're currently under 59, and you're not currently maxing out your Roth contributions.

If your older-than-60 self incurs medical expenses at least 7.5% of your gross income and itemizes, those expenses can be deducted—unless you used them as an excuse to make a tax-free HSA withdrawal. So if your future self is going to need the growth on today's existing HSA dollars to pay for medical expenses, you will still be better off burning any at-hand receipts to make HSA withdrawals today and coincidentally making Roth contributions of an equal amount. (And during years your future self is spending less than 7.5% of gross income on medical expenses, or fails to itemize, my proposed strategy does no worse than the “shoebox strategy”—you're still making 100% tax-free withdrawals from growth on money your past self had put into an HSA.)

  1. Roth IRA limits are not that high. ~250K currently, with for two-income family - or moderately well earning one-income - is not a lot. Once you hit that, no Roth for you.
  2. After 60, there will likely be a significant amount of medical bills. No insurance, as far as I know, covers 100% - especially not Medicare. So getting the money out of the HSA wouldn't be a big problem, however unlike Roth you can get this money untaxed on the way in and on the way out.

Roth IRA limits are not that high. ~250K currently, with for two-income family - or moderately well earning one-income - is not a lot. Once you hit that, no Roth for you.

Mega-backdoor Roth 401k allows up to 70k/year contributions with no income limit. Your employer has to offer it. FAANG does. It's a normal roth in terms of tax treatment.

When leaving the employer, you can convert to roth IRA with no penalties. Even better, you can leave it as non-roth until leaving the company, again with no penalties (but ofc you pay the income taxes to convert to roth).

Roth IRA [income] limits are not that high. ~250K currently…

Dude, they're twice the median income for couples (119k vs 236k), and 2.5x the median income for singles (61k vs 150k).

unlike Roth you can get this money untaxed on the way in and on the way out.

I think you might be misunderstanding or misreading my question.

I'm not comparing making new Roth contributions to making new HSA contributions. I'm discussing the so-called “shoebox strategy” for how someone who has existing money in an HSA should treat existing HSA-eligible receipts that they don't have a burning need for reimbursement on—whether to hold on to the receipts without cashing them out to allow the money to grow in the HSA, vs other possible courses of action.

I've proposed a strategy that I think strictly beats the “shoebox strategy” in most cases, listed 2 edge cases where my proposed strategy doesn't beat it [namely: (a) someone who is not maxing out their Roth contributions and anticipates HSA exhaustion before age 60, and (b) someone who is already maxing out their Roth contributions and anticipates HSA exhaustion before death], and asked whether there are any other cases where my proposed strategy doesn't beat it.

After 60…significant amount of medical bills

In your example case, if those medical bills are so "significant" as to exceed 7.5% of your gross income, and your future self itemizes, my proposed strategy still beats the shoebox strategy, since while you still take the growth (on money your younger self did put into an HSA) out completely tax-free to pay the medical expenses, your future self doesn't thereby sacrifice the ability to get a that-year deduction for the medical expenses.

And even if they don't rise to that 7.5% threshold, or your future self doesn't bother to itemize, my proposed strategy leaves you no worse off than the shoebox strategy, since either way you're taking out completely tax-free growth (on money your younger self did put into an HSA) to pay for medical expenses.

I assume some of the people discussing this are already maxing out their Roth IRA options, or exceed the salary caps.

I assume some of the people discussing this…

That's the thing, though—I have never once (before today) seen Roth accounts mentioned in the context of this.

Of the first page of Google results for shoebox hsa strategy, every article, including a YouTube video and the Reddit thread, fails to mention either my Roth-sweep strategy or the growth-death strategies as alternatives to the shoebox strategy; only the Bogleheads Forum thread even makes mention of my Roth-sweep strategy. (HowToMoney gets half credit for at least suggesting the idea of maxing out your Roth contributions before you put anything in your HSA; but they still don't even touch on my claim about how you could do a lot better than the shoebox strategy with existing HSA-eligible receipts.)

You can pay your medical expenses tax free out of the hsa but not the Roth.

but not the Roth

That's only true before age 60. After age 60, you can pay any expenses tax-free out of the Roth—and do so without sacrificing the ability to deduct those expenses if you're above the 7.5% threshold!

Besides the case of “someone who anticipates HSA exhaustion before age 60”, how does the shoebox strategy help? At best, it seems to put the shoebox strategy on equal footing with the Roth-sweep strategy.

It seems to me that occasional (over years or decades) medical expenses between the ages of 21 and 60 is a pretty realistic projection. In which case, why not have the money somewhere where it can both generate wealth and be spent tax-free?

In which case, why not have the money somewhere where it can both generate wealth and be spent tax-free?

This is such a vague sentence I don't understand it. What, exactly, are you saying? (Both the shoebox strategy and my proposed strategy allow the money to continue growing, and the growth on that money to eventually be spent on medical things without incurring any capital gains or other taxes — but, unlike the shoebox strategy, my proposed strategy doesn't ruin your future self's ability to deduct those expenses when those expenses exceed 7.5% of your gross income, and my strategy additionally allows the gains to still be completely tax-free in the happy-albeit-unlikely event that you don't spend them all on medical expenses before death.)

Are you claiming that the shoebox strategy ever beats my proposed strategy for someone who doesn't anticipate HSA exhaustion before age 60? If so, please explain.

Keep in mind, the shoebox strategy (which is what I'm rebutting) only applies when someone has incurred a medical expense, doesn't particularly need reimbursement at the moment, but has the money already in their HSA such that they could take reimbursement.

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