5 Ways to Reach FIRE With an HSA

Retiring early is the absolute dream for most of us. Of course, we’d all like to picture ourselves at 55, sitting on some beach in the south of Spain and sipping a cocktail without a care in the world.

5 Ways to Reach FIRE With an HSA

Retiring early is the absolute dream for most of us. Of course, we’d all like to picture ourselves at 55, sitting on some beach in the south of Spain and sipping a cocktail without a care in the world, but the reality is often a bit more pragmatic than that. In most cases, retiring early means having the funds to live within our means and having the flexibility to pursue projects that you’re truly passionate about. And while early retirement will look a bit different for each individual, the strategy for achieving it is most famously encompassed in the Financial Independence, Retire Early (FIRE) movement. For those of you who might not be as familiar with FIRE, it’s a financial strategy that aims for high savings and investment strategies that allow you to achieve the ultimate goal: Retire early. So in that spirit, let us introduce a new financial tool that you may not have thought or known about when planning your financial future: Say hello to your new savings friend, the Health Savings Account (HSA).

An HSA is a tax-advantaged savings account that you can use to pay for medical expenses. Keep in mind that the word “savings” is a bit misleading here: Although you can certainly use it as a traditional savings account, an HSA particularly shines when you also put money into investments and benefit from higher interest rates. Some employers offer HSAs, but you can also open one yourself if you have a high-deductible health plan. Here are 5 reasons why an HSA should be part of your arsenal in your FIRE strategy.

1. Triple tax advantage for life - so find an HSA you love!

Wait a minute, you might be thinking. I already have an IRA or a 401(k). Why do I need an HSA? The question is, why not? If you qualify, why wouldn’t you want to take advantage of as many tax-reducing saving tools as you can? One of the primary benefits of an HSA is its triple tax advantage: HSA contributions are either pre-tax (if the account is offered by an employer) or tax-deductible (if you opened your own), and you don’t pay taxes on the account’s growth (which is why it’s a great tool for investing in high-yielding stocks, ETFs, and mutual funds). Plus, if you make withdrawals for eligible medical expenses, then you don’t pay tax on those withdrawals either, and they’re available anytime, unlike an IRA or 401(k). That way you can invest, save, and spend while enjoying tax benefits that last a lifetime.

2. Tax-free investing

Remember how we said that an HSA is also a great investing tool? With First Dollar’s HSA, you’ll soon have complete access to the stock market with TD Ameritrade, an online brokerage that currently has more than $1 trillion in assets under management. You’ll be able to do self-directed trading with a wide variety of assets through the award-winning TD Ameritrade app. Interested in more exposure to the entire U.S. equities market via mutual funds like the Vanguard Total Stock Market Index Fund (VTSAX) and the Vanguard 500 Index Fund (VFIAX)? No problem. Want to explore Bitcoin? You got it. By linking your First Dollar account to a TD Ameritrade account, you’ll soon be able to invest however you want, tax-free. 

3. Save on everyday necessities

In addition to providing great tax advantages, an HSA is also a great saving tool, particularly when it comes to medical expenses. That’s because you can spend pre-tax dollars on everything you need for your health and wellbeing: This can range from sunscreen and vitamins to Ibuprofen and contact lenses. So every time you’re doing a basic CVS run, you’re basically browsing the aisles with a 20-38% discount for health and wellness products. Those are significant savings that add up over time when tax season rolls around. Another great aspect of HSAs is that the list of qualified items just keeps growing. Say hello to savings on feminine products, birth control, over the counter medication, and even services like mental health treatments and IVF, which aren’t always covered by health insurance.

4. Avoid penalties and create your ideal tax bill, now and in the future

One of the qualities that sets an HSA apart from an IRA or a 401(k) is that you have way more flexibility on shaping your financial present and future. While you’d be hit with heavy penalties for withdrawing from a retirement account before the age of 65, whereas an HSA will always allow you to withdraw funds for medical expenses and wellness-related costs, tax-free. And since you can claim medical expenses at any time after your HSA was established, you can pay them or reimburse yourself with HSA funds at any time. This is a great strategy to hack your tax bill down the line, when you’re happily retired and traveling the world, cocktail in hand. 

5. Enjoy the benefits of a normal retirement account after you turn 65

While you’ll hopefully have been living that sweet jet-setter lifestyle for a while by the time you’ve turned 65, your HSA will turn into a retirement account not unlike an IRA. You can withdraw from your HSA for any reason, penalty-free (although you will have to pay taxes on those withdrawals). But you know what will still be tax-free, for the rest of your life? Withdrawals for medical expenses. Plus, all of your everyday health and wellness purchases will remain eligible for tax deductions. HSAs also have a little bonus for the early retirement crowd: Although HSAs have yearly contribution limits, those who are 55 and older are allowed a “catch-up” contribution of $1,000, pre-tax.

Already have an HSA but interested in hopping on board with us? No problem. Click here to join.

You can use First Dollar as a replacement to your current HSA, or use us alongside whatever your employer is currently providing. If you use a First Dollar to compliment your current HSA, you can continue receiving contributions from your employer. Simply transfer those funds into your First Dollar account to take advantage of our exclusive savings and benefits. If your employer is not making contributions to your current HSA, you can still sign up with us and ask your HR department to enroll your new HSA into their payroll system. Setting up your First Dollar membership is easy peasy.

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