Thanks for the replies. A few more questions:
1) If you have the extra cash flow, keep a deductible equivalent in cash, and invest the first dollar you can in the HSA.
By that do you mean, keep a deductible equivalent in cash
outside the HSA? Or inside? I have a relatively small emergency fund in cash that would cover the deductible. I would have an uncomfortably small emergency fund if I had to pay the deductible and would need to shift gears to rebuilding the emergency fund. I lean toward investing the first dollar in the HSA because of this after-tax cash emergency fund.
Note, you can keep your receipts for expenses you pay out of pocket and reimburse yourself in the future, inflation adjusted.
Pay your medical expenses from post-tax funds and save the receipts. After you retire, you can withdraw tax-free funds from your HSA up to your total medical spending since you opened the account.
I imagine this is true because you both said it, but I would like to see a citation so I can read for myself. IRS guidance documents, regulations, or the revenue code would be appreciated. This strikes me as stupid policy, but I will happily take advantage of it.
2) If you can't afford to max out all of your tax-advantaged savings options, keep some amount (the deductible is a reasonable amount) in cash. Pay any medical bills out of the HSA. If your HSA grows larger than you think you'll need for medical treatment in a year, invest the remainder.
Same question: are you advocating keeping cash in the HSA or in a post-tax account?
Why do you use maximization of all retirement accounts as the determining factor? This strikes me as overly conservative.
As more background, I will likely not be able to max out tax advantaged retirement accounts due to repayment of student loans and some unexpectedly high expenses that my one year old daughter requires. I will contribute 4% of my salary to take advantage of employer's 401(k) match. In the next two years we will place a high priority on paying down about $24,000 in student loan debt, currently at 6.8% but we may refinance. Maxing the HSA would be my next priority, and I may prioritize maxing the HSA above paying down the student loan debt, especially in the vulnerable first year and especially if we refinance to a lower rate. Only after killing student loan debt would I turn to IRA / 401(k). This would be consistent with the general consensus expressed in the Case Study spreadsheet regarding priority of savings vehicles:
WHAT
0. Establish an emergency fund to your satisfaction
1. Contribute to 401k up to any company match
2. Pay off any debts with interest rates ~5% or more above the 10-year Treasury note yield.
3. Max HSA
4. Max Traditional IRA or Roth (or backdoor Roth) based on income level
. . .
My shorter-term goal would be to get to the point of having at least a couple years' worth of deductibles invested in the HSA. This would make up the conservative portion of my retirement portfolio. I would not touch it unless there were big expenses we could not cash flow with after-tax dollars. But there is a chance it will need to be the medical emergency fund.