Master the HSA
The secret weapon most teachers miss (and how the triple tax advantage works)
The Account I Wish I'd Known About 20 Years Earlier
I'll be honest — for most of my career, I had no idea the HSA even existed. I'd heard the acronym tossed around during open enrollment, but nobody ever explained why it mattered. It was just another form to skip past.
That changed when I started listening to the ChooseFI podcast — specifically episodes 161 and 257. A personal finance educator named Jackie Cummings Koski broke down the HSA in a way that made my jaw drop. She also did an incredible episode on the Journey To Launch podcast (episode 40). I was so fired up that I actually emailed her with questions — and she got right back to me.
From there, I went down the rabbit hole. More podcasts. More research. And the more I learned, the more I couldn't believe what I'd been missing.
Coach Marty says:
The Most Tax-Advantaged Account Available
A Health Savings Account (HSA) is a tax-advantaged savings account designed for people with high-deductible health plans (HDHPs). Think of it as a retirement account specifically for healthcare costs—but with even better tax benefits than a 403(b) or IRA.
Many teachers are familiar with the FSA (Flexible Spending Account) — and this causes confusion. An FSA is "use it or lose it." Any money left in your FSA at the end of the year is gone. An HSA is the complete opposite: your money rolls over year after year, forever. It never expires. You never lose access to it. You can contribute this year, invest it, let it grow for 30 years, and use it in retirement. This is what makes the HSA so powerful — it's not a spending account with a deadline, it's a wealth-building account with no time limit.
What qualifies as a medical expense? HSAs can be used for a wide range of healthcare costs including doctor visits, prescriptions, dental care, vision care, medical equipment, and more. For a complete list, see IRS Publication 502.
⚠️ CRITICAL: Do You Qualify for an HSA?
Not everyone can contribute to an HSA. You need all five of these to be in place:
- 1. You're enrolled in a qualifying High-Deductible Health Plan (HDHP) — check your benefits documents for "HDHP" or "HSA-eligible," or simply ask HR
- 2. You're NOT enrolled in Medicare
- 3. You're NOT claimed as a dependent on someone else's tax return
- 4. You don't have other disqualifying health coverage — like a spouse's general-purpose FSA (a limited-purpose FSA for dental/vision is fine)
- 5. You're not covered by another non-HDHP health plan — such as a spouse's traditional plan that also covers you
Not sure if you qualify? Your HR department can confirm in about 2 minutes. Just ask: "Is my health plan HSA-eligible?"
If you DON'T currently have an HDHP, you cannot open or contribute to an HSA. But you can switch during open enrollment if your district offers an HDHP option.
Coach Marty's HDHP Win-Win:
My individual deductible was $5,000, with a $6,500 out-of-pocket max. After hitting the deductible, we had 70/30 coinsurance — meaning I paid 30% of additional costs until reaching that $6,500 cap. So in an absolute worst-case year where I maxed out the full out-of-pocket limit, I still pocketed $2,300 ($8,800 - $6,500). A more typical year with moderate medical expenses? I'd pocket somewhere between $3,000 and $5,000. And in years where I barely used my insurance? I kept almost all of that $8,800. It was a win-win no matter what.
Check with your district — you might be surprised at what they offer for choosing a high-deductible plan. Do the math. For me, it was one of the easiest financial decisions I ever made.
The Triple Tax Advantage (Unmatched!)
HSAs have a triple tax advantage that no other account offers:
✅ Three Ways HSAs Beat Everything Else
- 1. Tax-deductible contributions: Money goes in pre-tax (or you deduct it on your tax return), reducing your taxable income RIGHT NOW
- 2. Tax-free growth: Investments grow without taxes—no taxes on dividends, capital gains, or interest
- 3. Tax-free withdrawals: When you use the money for qualified medical expenses, you pay ZERO taxes. Ever.
No other account can say this. 403(b)s are taxed when you withdraw. Roth IRAs don't give you a tax deduction up front. HSAs do BOTH.
⚠️ California & New Jersey Teachers: Read This First
If you teach in California or New Jersey, your state does not recognize HSAs. That means the triple tax advantage above only applies at the federal level — your state treats the HSA differently:
- Contributions are NOT deductible on your state tax return — you contribute with after-state-tax dollars
- Earnings inside your HSA ARE taxable at the state level — interest, dividends, and capital gains you earn each year must be reported as income on your state return
This catches many teachers off guard at tax time. Many educators in these states have had to file amended returns when they or their tax preparer didn't account for HSA earnings. Make sure your CPA or tax preparer knows you have an HSA — it affects your state return every single year.
The good news: The federal tax benefits are still significant, and the HSA remains one of the most powerful retirement healthcare tools available. California and New Jersey teachers still benefit — just not as dramatically as teachers in other states. An HSA is still worth having. Just go in with eyes open.
The QUADRUPLE Tax Advantage (If Funded Through Payroll)
Here's where it gets even better: If your district allows you to contribute to your HSA through payroll deduction, you get a 4th tax advantage that most people miss.
The 4th advantage: Skip payroll taxes!
When you contribute through payroll deduction (before your paycheck is calculated), you avoid paying:
- Social Security tax (6.2%)
- Medicare tax (1.45%)
That's an extra 7.65% savings on every dollar you contribute!
What if my district doesn't offer payroll deduction? No problem — you can still open an HSA on your own and get the triple tax advantage. You'll just miss the payroll tax savings. We'll cover exactly how to do this later in this module.
2026 HSA Contribution Limits
| Coverage Type | 2026 Limit | Age 55+ Catch-Up | Total if 55+ |
|---|---|---|---|
| Individual | $4,400 | +$1,000 | $5,400 |
| Family | $8,750 | +$1,000 | $9,750 |
← Scroll to see full table →
Coach Marty says:
The Power Move: Invest Your HSA
Here's what most people miss: You don't have to spend HSA money immediately.
📊 The Stat That Should Stop You in Your Tracks
According to the 2024 Devenir HSA Research Report, only about 9% of HSA accounts have any money invested. The other 91% are sitting in cash, earning almost nothing — missing out on years of tax-free growth. And here's what that costs: invested HSA accounts average $22,032 in total balance. Non-invested accounts? About $2,500. Same account type. Same tax advantages. The only difference is whether the money is working or sitting still.
Many HSA providers (such as Fidelity, Lively, and HSA Bank — mentioned as educational examples, not endorsements) allow you to invest your HSA balance in stocks, bonds, and index funds—just like a 403(b). This is the superpower of the HSA.
Here's how it works:
- You contribute to your HSA (pre-tax or tax-deductible)
- You invest the money in low-cost index funds (same as your 403(b))
- It grows tax-free for 20-30 years
- When you need to pay a medical bill, you simply sell some investments and use your HSA debit card to pay—100% tax-free
You can also choose NOT to invest: If you prefer, you can keep your HSA balance in cash (earning a small amount of interest) and use it for immediate medical expenses. But this means missing out on decades of tax-free growth—the real power of the HSA.
The Advanced HSA Strategy: The Receipt Tracking System
This is the strategy that turned my HSA into something more than just a healthcare account.
Now that you know you can invest your HSA, here's how I took it to the next level: I paid for my medical expenses out of pocket whenever I could and tracked every single one on a spreadsheet. I didn't touch the HSA — I let it grow, fully invested in index funds.
Here's what a lot of teachers don't realize about an HDHP: you're responsible for costs up to your deductible before insurance kicks in. Doctor visits, prescriptions, lab work — those bills are coming no matter what. But you have a choice in how you pay them. You can use your HSA debit card and pay directly from your HSA. Or you can pay out of pocket from your checking account and let your HSA keep growing. Both are perfectly valid — it's your call.
I chose to pay out of pocket as much as I could, especially while I was building up my HSA balance. I tracked every receipt on a spreadsheet so I could reimburse myself later if I ever needed to. That's the power of this strategy — there's no time limit on reimbursement. Your HSA grows invested for years, and when you need the cash, you pull it out tax-free against those old receipts.
In reality, I only reimbursed myself twice over my entire career. Toward the end, as I got closer to retirement, I'd occasionally use my HSA debit card to pay a medical bill directly — mostly at the dentist. And that was fine. That's what the account is there for.
One thing to know if you do use your HSA debit card: The card can only pull from your cash balance — not directly from your investments. If you have everything invested (which many HSA investors aim for), your debit card will decline because there's nothing sitting in cash. You'd need to log into your account, sell enough of your investment to cover the bill, wait for it to settle into your cash balance (usually 1-2 business days), and then use the card. It's not complicated, but it's not instant either. That's one more reason paying out of pocket and tracking receipts is a smoother approach for many educators — your money stays invested and you reimburse yourself on your own timeline when you're ready.
The receipt tracking strategy is one approach many educators use — let it grow as long as you can. But your HSA is flexible. Use it when you need to, let it grow when you can. There's no wrong answer as long as you're using it for qualified medical expenses.
The key: You can reimburse yourself for qualified medical expenses YEARS later. There's no time limit. Not sure what counts? The IRS has a full list of qualified medical expenses in IRS Publication 502 — it covers more than you'd think (doctor visits, prescriptions, dental, vision, medical equipment, and more).
How the Receipt Tracking Strategy Works:
- Pay medical expenses out-of-pocket using your checking account or credit card (if you can afford it)
- Save every receipt and create a spreadsheet with date, provider, amount, and description
- Contribute the maximum to your HSA each year ($4,400 individual, $8,750 family for 2026)
- Many educators choose to invest some or all of their HSA balance in low-cost index funds (similar approach to a 403(b))
- Let it grow tax-free for 10, 20, even 30 years while you pay current medical bills out-of-pocket
- Reimburse yourself ANYTIME in the future for those tracked medical expenses—100% tax-free, no penalty, even before age 59½
Here's How This Could Work:
Imagine a teacher pays about $35,000 in medical expenses out-of-pocket over 15 years (doctor visits, prescriptions, dental work, vision care). They track every receipt in a simple Excel spreadsheet.
Meanwhile, their HSA balance grows from $0 to over $80,000 because they're maxing it out every year and keeping it fully invested.
When they need cash in their early 60s (before Medicare), they reimburse themselves for those old medical expenses—$35,000 withdrawn completely tax-free and penalty-free. But their HSA still has $45,000+ left because of the tax-free growth over 15 years!
This is a hypothetical illustration for educational purposes only. Actual results depend on contributions, investment returns, and individual circumstances. HSA investments are subject to market risk.
Coach Marty's Receipt Tracking System:
1. Spreadsheet: A simple Excel file with date, provider, amount, and description for every medical expense.
2. Physical file: Paper receipts and EOBs (Explanation of Benefits) in a labeled folder by year.
3. Phone screenshots: Photos of every receipt saved to a dedicated album on my phone.
4. Account statement: A copy of the Fidelity account statement from the month of each expense, proving the HSA balance existed at the time.
Four layers of proof. If the IRS ever asks, I've got documentation coming from every direction. Is it overkill? Maybe. But when thousands of dollars in tax-free reimbursements are on the line, I'd rather have too much proof than not enough.
Bonus — The Fidelity Signature Rewards Hack:
So when I paid a $4,000 medical bill out of pocket with that card, $80 would automatically drop into my retirement account. Meanwhile, I tracked the receipt, let my HSA keep growing invested, and kept the option to reimburse myself tax-free years later.
Think about that: I got 2% cash back going into my retirement, the medical expense was tracked for future tax-free reimbursement, AND my HSA balance kept compounding. Three wins from one transaction. I switched which account received the 2% over the years depending on my strategy at the time — it consistently directed cash back toward my retirement accounts. Credit card rewards programs and terms can change — always review current terms before applying.
Your District Doesn't Offer an HSA? No Problem.
This is exactly what happened to me. My district offered the HDHP, but they didn't provide an HSA. So I went and opened one on my own with Fidelity. It took about 15 minutes online.
Here's the key point: as long as you have a qualifying HDHP, you can open an HSA yourself at any major brokerage firm — completely independent of your school district.
✅ How to Open an HSA on Your Own
Step 1: Confirm you have an HDHP (check your health plan documents or ask HR)
Step 2: Choose a brokerage firm that offers HSAs. Popular options include:
- Fidelity (as an example — often noted for low fees and investment options)
- Lively (simple interface, good for beginners)
- HSA Bank (widely used, solid platform)
Step 3: Open your HSA account online (takes about 10-15 minutes)
Step 4: Fund your HSA by:
- Setting up automatic transfers from your checking account, OR
- Making manual contributions throughout the year
Step 5: Deduct your contributions on your tax return (Form 8889)
The catch: If your district doesn't offer payroll deduction, you'll contribute with after-tax dollars and claim the deduction when you file taxes. You still get the tax benefit—it just happens at tax time instead of immediately. And you'll miss the payroll tax savings (Social Security/Medicare taxes), but you still get the triple tax advantage.
Bottom line: Even if your district doesn't offer HSA payroll deductions, you can open an HSA yourself if you have an HDHP — and many educators in this situation do. The tax benefits are worth exploring.
Why This Matters for Teachers: Healthcare Costs in Retirement
According to Fidelity's 2025 Retiree Health Care Cost Estimate, a 65-year-old retiring in 2025 can expect to spend an average of $172,500 in health care and medical expenses throughout retirement. For a couple, that number is approximately $345,000. Individual costs vary significantly depending on health status, location, and longevity. These estimates do not include long-term care.
And that's WITH Medicare!
Medicare doesn't cover everything:
- Medicare premiums (Part B, Part D, Medigap)
- Prescription drugs (co-pays and deductibles)
- Dental and vision care (not covered by Medicare)
- Long-term care (nursing homes, in-home care)
- Hearing aids
An HSA helps you cover these costs TAX-FREE. That's a significant advantage over pulling money from a tax-deferred 403(b), where every withdrawal is taxed as ordinary income.
What If I Retire Before 65?
Many teachers retire at 55-60. If you retire before Medicare kicks in at 65, you'll need to pay for health insurance yourself. This can cost $10,000-$20,000 or more per year, depending on your location, age, and plan type.
Your HSA can bridge this gap. You can use HSA funds to pay for:
- Premiums for COBRA continuation coverage
- Premiums for marketplace health insurance (if you're receiving unemployment compensation)
- Medicare premiums (Parts A, B, C, D) (Note: HSA funds cannot be used for Medigap/Medicare Supplement premiums)
- Out-of-pocket medical expenses
Age 65+: HSAs Become Even More Flexible
Here's a bonus: At age 65 or older, you can withdraw HSA funds for ANY reason—not just medical expenses.
If you withdraw for non-medical expenses, you'll pay ordinary income tax (just like a traditional IRA), but there's no 10% penalty. This makes the HSA function like a traditional IRA with bonus tax-free medical withdrawals.
⚠️ Critical: Medicare Ends Your HSA Contributions
Once you enroll in any part of Medicare — Part A, Part B, Advantage, or Part D — you can no longer contribute to your HSA. Your existing balance is still yours, and you can still withdraw tax-free for qualified medical expenses (including Medicare premiums). But no new money can go in.
Here's where teachers get tripped up: if you enroll in Medicare Part A after age 65, your coverage is retroactively backdated up to 6 months. Any HSA contributions you made during that retroactive period become excess contributions — subject to a 6% excise tax for every year they remain in the account.
And if you start collecting Social Security at 65 or older, you're automatically enrolled in Medicare Part A — no choice, no opt-out. That triggers the same contribution cutoff.
The safe move: Stop HSA contributions at least 6 months before you plan to apply for Medicare or Social Security. This protects you from the retroactive coverage trap. If you're still working past 65 with employer health coverage and haven't enrolled in Medicare, you can keep contributing — but plan your exit carefully.
Real Teacher Examples
I want to show you what this looks like for two teachers at different stages of their careers — one going all-in on the receipt tracking strategy, and one using the HSA more practically for current expenses. Both approaches work.
📖 Jessica's 30-Year HSA Strategy
Jessica is 35, makes $65,000/year, and switched to her district's high-deductible health plan with an HSA. Her district contributes $1,000/year, and she contributes $3,400 more ($4,400 total individual max). Not all districts contribute to your HSA — many don't. If yours does, that's a bonus. If not, you can still max it out yourself and get every tax advantage described here.
She pays current medical bills out-of-pocket (about $1,500/year) and invests the majority of her HSA balance in a total stock market index fund (for illustration purposes).
After 30 years assuming a hypothetical 7% average annual return:
- Total invested: $132,000 ($4,400/year × 30 years)
- HSA balance at age 65: approximately $450,000 (hypothetical illustration, not a guarantee of future performance)
- Tax-free withdrawals for healthcare in retirement: Every penny
Compare this to paying those medical expenses from a 403(b), where she'd pay income tax on every withdrawal. In this hypothetical, the HSA could potentially save her $100,000+ in taxes over retirement.
📖 Marcus and Lisa's Combined Strategy
Marcus (42) and Lisa (40) are both teachers with a family HDHP. They max out their family HSA at $8,750/year.
They use HSA funds for current expenses like braces for their kids ($6,000), vision care ($500), and prescriptions ($1,200/year). The rest stays invested.
Their HSA balance grows to about $85,000 by the time Marcus retires at 60. When they both need health insurance until Medicare at 65, they use the HSA to cover premiums tax-free—saving them from pulling taxable money out of their 403(b)s.
Coach Marty's Bottom Line:
You just saw the healthcare cost numbers above. Those numbers are real, they keep climbing, and they're what motivated me to take the HSA seriously. Whether you go with the basic approach or the advanced receipt tracking strategy, you're setting yourself up to handle those costs tax-free.
I did my homework. I listened to the podcasts, emailed the experts, read the IRS publications, and built the receipt tracking system. Now I'm passing all of it to you so you don't have to do that homework yourself. If you're eligible for an HSA, this can be one of the most powerful tools available to eligible educators.