Table of Contents

  1. What Is the "Stealth IRA"?
  2. Why High Earners Should Pay Attention
  3. The Triple Tax Advantage Explained
  4. Eligibility Requirements
  5. The Pro Mode Strategy: Building Wealth Through Your HSA
  6. Investment Options Within Your HSA
  7. The Reimbursement Hack That Changes Everything
  8. What Happens at Age 65
  9. HSA vs. Traditional Retirement Accounts
  10. Is This Strategy Right for You?

If you're a physician pulling 12-hour shifts, a tech executive managing stock options, or any high earner looking for tax-advantaged retirement strategies, there's a good chance you've overlooked one of the most powerful wealth-building tools available. It's hiding in plain sight, often dismissed as just a way to pay for Band-Aids and prescription copays.

We're talking about your Health Savings Account, or as savvy financial planners call it, the "Stealth IRA."

At Davies Wealth Management, we regularly help clients discover that their HSA isn't just a medical expense account. When used strategically, it becomes a retirement vehicle that outperforms even your 401(k) in tax efficiency.

What Is the "Stealth IRA"? {#what-is-the-stealth-ira}

The term "Stealth IRA" refers to using your HSA primarily as a long-term retirement savings vehicle rather than a short-term medical expense fund. The strategy works because HSAs offer something no other account provides: a triple tax advantage.

Unlike a traditional IRA or 401(k), your HSA contributions go in tax-free, grow tax-free, and come out tax-free when used for qualified medical expenses. And here's where it gets interesting, at age 65, your HSA essentially converts into a traditional IRA, allowing you to withdraw funds penalty-free for any purpose.

That's not a typo. Any purpose.

A piggy bank blending into a medical cross symbolizing the transformation of HSAs into retirement tools for high earners

Why High Earners Should Pay Attention {#why-high-earners-should-pay-attention}

If you're earning a substantial income, you've likely hit contribution limits or income phase-outs on other tax-advantaged accounts. Roth IRAs? Income limits kick you out. Traditional IRAs? Deductions phase out if you have a workplace retirement plan.

HSAs have no such restrictions.

There are no income limits on HSA contributions. Whether you're a resident earning your first attending salary or a senior partner at a tech firm, you can contribute the full annual maximum. For 2024, that's $4,150 for individual coverage or $8,300 for family coverage, with an additional $1,000 catch-up contribution if you're 55 or older.

For high earners in the 32%, 35%, or 37% tax brackets, the immediate tax deduction alone makes this strategy compelling. But the real magic happens when you let those contributions compound over decades.

The Triple Tax Advantage Explained {#the-triple-tax-advantage-explained}

Let's break down why the HSA stands alone in the tax-advantaged universe:

1. Tax-Deductible Contributions
Every dollar you contribute reduces your taxable income. If you're in the 35% bracket and contribute the family maximum of $8,300, you've just saved $2,905 in federal taxes, before your money even starts growing.

2. Tax-Free Growth
Unlike taxable brokerage accounts where you pay capital gains on investment returns, your HSA investments grow completely tax-free. No taxes on dividends. No taxes on capital gains. Nothing.

3. Tax-Free Withdrawals
When you withdraw funds for qualified medical expenses, you pay zero taxes. This is where HSAs beat even Roth IRAs, Roth contributions aren't tax-deductible, but HSA contributions are.

As we discuss frequently on the Davies Wealth Management podcast at 1715tcf.com, this triple tax advantage makes the HSA the single most tax-efficient account available to American investors.

Eligibility Requirements {#eligibility-requirements}

To contribute to an HSA, you must be enrolled in a High-Deductible Health Plan (HDHP). For 2024, that means a plan with a minimum deductible of $1,600 for individual coverage or $3,200 for family coverage.

Here's what often surprises high earners: many employer-sponsored HDHPs are actually excellent plans with lower premiums, and the premium savings alone can offset or exceed your HSA contributions.

You also cannot:

  • Be enrolled in Medicare
  • Be claimed as a dependent on someone else's tax return
  • Have other health coverage (with some exceptions)

For physicians transitioning between positions or tech executives evaluating compensation packages, understanding these requirements can help you structure your benefits strategically.

A professional workspace with financial charts and a stethoscope, representing HSA planning for physicians and executives

The Pro Mode Strategy: Building Wealth Through Your HSA {#the-pro-mode-strategy}

Here's where most people get it wrong. They use their HSA like a checking account, swiping their debit card every time they visit the pharmacy.

The wealth-building approach is different:

Step 1: Max Out Contributions Annually
Treat your HSA contribution like your 401(k), non-negotiable and automatic. Set up payroll deductions if available (this also saves you FICA taxes).

Step 2: Pay Medical Expenses Out-of-Pocket
This is the key insight. Instead of using your HSA funds for current medical expenses, pay those costs from your regular checking account.

Step 3: Keep Every Receipt
Save documentation for every qualified medical expense you pay out-of-pocket. There's no time limit on reimbursement.

Step 4: Let the Account Compound
Allow your HSA investments to grow untouched for 20, 30, or even 40 years.

For a 35-year-old physician contributing the family maximum and earning 7% annually, that HSA could grow to over $800,000 by age 65, completely tax-free for medical expenses.

Investment Options Within Your HSA {#investment-options-within-your-hsa}

Many people don't realize that HSAs can be invested just like a 401(k). Most providers allow you to invest once your balance exceeds $1,000 or $2,000.

Your investment options typically include:

  • Index funds (S&P 500, total market)
  • Target-date funds
  • Bond funds
  • Individual stocks (at some providers)

The key is treating your HSA allocation as part of your overall investment strategy. If you're decades from retirement, a growth-oriented portfolio makes sense. As you approach 65, you might shift toward more conservative allocations.

At Davies Wealth Management, we help clients integrate their HSA investments into their comprehensive wealth management strategy, ensuring proper diversification across all accounts.

The Reimbursement Hack That Changes Everything {#the-reimbursement-hack}

Here's the strategy that sophisticated investors use: delayed reimbursement.

The IRS allows you to reimburse yourself from your HSA for qualified medical expenses at any time, even years or decades after the expense occurred. The only requirement is that the expense happened after you established your HSA.

Example: You pay $3,000 out-of-pocket for a medical procedure in 2024. You save the receipt. Twenty years later, that $3,000 (invested at 7% annually) has grown to approximately $11,600. You can now withdraw $3,000 completely tax-free by reimbursing yourself for that 2024 expense, while the remaining $8,600 continues growing.

This creates incredible flexibility. You're essentially building a tax-free savings account with medical receipts serving as "withdrawal tickets" you can use whenever you choose.

Three transparent containers glowing with golden light representing HSA's triple tax advantage and tax-free growth potential

What Happens at Age 65 {#what-happens-at-age-65}

At 65, your HSA transforms. You can still use it tax-free for medical expenses, but now you can also withdraw funds for any purpose without penalty.

Non-medical withdrawals after 65 are taxed as ordinary income, exactly like a traditional IRA distribution. But medical withdrawals remain completely tax-free, and considering that healthcare typically represents one of the largest expenses in retirement, you'll likely have plenty of qualified expenses to draw against.

Another crucial advantage: HSAs have no required minimum distributions. Unlike traditional IRAs and 401(k)s that force you to start withdrawing at 73, your HSA can continue growing tax-free as long as you live.

HSA vs. Traditional Retirement Accounts {#hsa-vs-traditional-retirement-accounts}

Feature HSA 401(k) Traditional IRA Roth IRA
Tax-deductible contributions ✓ ✓ ✓* ✗
Tax-free growth ✓ ✗ ✗ ✓
Tax-free withdrawals ✓** ✗ ✗ ✓
Income limits None None Deduction limits Yes
RMDs None Yes Yes No***

*Subject to income limits if covered by workplace plan
**For qualified medical expenses
***During owner's lifetime

The HSA is the only account that checks all three tax-advantage boxes.

Is This Strategy Right for You? {#is-this-strategy-right-for-you}

The Stealth IRA strategy works best for individuals who:

  • Can afford to pay current medical expenses out-of-pocket
  • Have a long time horizon (ideally 15+ years until retirement)
  • Are in a high tax bracket and benefit significantly from the deduction
  • Have already maxed out employer 401(k) matches
  • Are comfortable with HDHPs and can manage the higher deductible

For physicians, tech executives, and other high earners, this strategy often makes sense as part of a comprehensive retirement plan.

If you're not sure whether the Stealth IRA approach fits your situation, the team at Davies Wealth Management can help you evaluate your options and integrate HSA planning into your broader wealth strategy.

Taking the Next Step

Your HSA might be the most underutilized tool in your financial arsenal. By shifting your perspective from "medical expense account" to "tax-advantaged retirement vehicle," you unlock decades of tax-free growth potential.

Start by reviewing your current HSA provider's investment options. Consider whether you can afford to pay current medical expenses out-of-pocket. And most importantly, begin saving those receipts: your future self will thank you.

For personalized guidance on implementing the Stealth IRA strategy within your comprehensive financial plan, reach out to Davies Wealth Management to schedule a consultation.