The Secret Early Retirement Account: How HSAs Can Help You Achieve Financial Independence

Most people don’t know it, but Health Savings Accounts (HSAs) can play a big part in helping people achieve F.I.R.E if used wisely. Our HSA has been massively helpful for Amon and me and definitely contributed to our ability to retire early.

That’s why I’m going to discuss our account with you, so you can see how we chose to invest in our HSA and how you might be able to also invest in an HSA on your journey to financial independence.

What is an HSA?

The truth is that the majority of people only see the HSA as exactly what it’s called - a Health Savings Account. But in the F.I.R.E community, an HSA is almost always seen as an alternative retirement account. It might sound confusing at first, but just wait. Toward the end of this article, I’m going to share the retirement hack that many people have started using on their F.I.R.E journey.

But first, what is an HSA exactly? An HSA is a personal savings account that can be used for qualified health expenses. And unlike other accounts, HSAs offer a triple tax benefit!

First, HSA contributions are pre-taxed, so all of the money you deposit into it grows tax-free. Second, all withdrawals are tax-free for qualified medical expenses. Third (and best of all), at age 65 and older, your HSA can be used as a traditional IRA, meaning all of the money in your HSA can be used towards any of your other expenses - even if they aren’t for medical expenses.

Who Is Eligible For an HSA?

You need to be enrolled in a high-deductible health plan to be eligible for an HSA. These plans have a higher deductible than traditional insurance plans. They typically have lower monthly premiums, but more of a deductible before your insurance company begins to pay.

Our family of four was enrolled in a high-deductible health plan which is how we were eligible to contribute to our HSA. Our monthly premiums were $300, and we paid a $3,000 annual deductible. Our insurance company also contributed $1,800 per year to our HSA account which was essentially free money!

This is called a premium pass-through contribution, and it varies greatly depending on your insurance company, so you want to check with your individual insurance company regarding their premium pass-throughs. One thing to remember is that these premium pass-through contributions are still considered your money, and if you don’t spend it by the end of the calendar year, the money simply rolls over into the next one, and on and on. There is no time limit for using the money in your HSA.

How We Used an HSA On Our F.I.R.E Journey

Now on to the juicy details. Most people put their HSA savings aside until they need them for medical expenses. But we didn’t do that. Instead, we connected our HSA to a brokerage account so that we could invest our HSA money in the stock market.

The majority of people don’t even know that this is possible. In fact, studies have shown that only 25% of eligible people use HSAs. Of that group, only 15% use HSAs for investing. This is a colossal missed opportunity for many people. And it’s partially because your typical financial advisor isn’t talking about HSAs - they’re