It may not seem possibly to use your health savings account for anything other than medical expenses, but you can easily use your HSA as part of your early retirement strategy.

Early retirement is becoming a more popular conversation (especially online) in recent years and it’s an exciting goal to have. There’s even a FIRE movement which stands for Financially Independent and Retiring Early.

If you’re aiming for FIRE yourself, you know that you need to have a specific investment strategy in place.

Simply contributing to your 401(k) or your Roth IRA probably won’t be good enough since there are early withdrawal penalties.

One of the best things you can add to your retirement strategy is by contributing to your Health Savings Account (HSA) and investing the funds.

What is an HSA?

Health Savings Accounts exist to help Americans with high-deductible health plans pay for medical expenses. High-deductible medical plans are very common these days and make it difficult for some Americans to pay their medical bills alongside health insurance premiums.

HSAs are nice because they allow you to set money aside to cover any unexpected (and expected) medical bills. High-deductible medical plans can save you money upfront because you can pay a lower premium, but think of HSAs as an emergency fund for your medical expenses and a nice hack to help you invest as well.

With an HSA, you can currently contribute up to $3,850 annually if you’re single and $7,750 if you have a family medical plan. If you’re 55 or older, you can contribute an additional $1,000 each year.

Unfortunately, not everyone qualifies to contribute to an HSA. For starters, you must have a high-deductible plan through your employer. If the option to contribute to an HSA arises, be sure to take it. Here’s why.

Sometimes employers, match contributions, which is easy money to take advantage of. If you switch employers or change medical plans, you won’t lose the funds you deposit. Plus, you don’t have to use the funds you contribute each year.

Also, HSA funds can be used to pay for qualifying medical expenses tax-free. Qualified medical expenses include: surgery, x-rays, dental care, etc. There’s a long list, but you can view all qualifying medical expenses by checking out IRS Publication 502.

How to invest HSA funds

The great thing about having an HSA is that once your balance reaches $2,000, you can invest any additional contributions. Let’s say you max out your family contribution limit for the year and save $7,750 in your HSA.

That means you’ll have $5,750 to invest while the remaining $2,000 sits as cash. You can invest in mutual funds, and one of the best benefits of doing this with an HSA is the triple tax advantage.

There are three tax advantages you can benefit from when you contribute to your HSA.

1. The money you deposit is treated as pre-tax

This can help reduce your taxable income each year.

2. Qualified medical expenses aren’t taxed

As long as you use your funds to cover qualifying medical expenses, you won’t have to worry about paying taxes on it.

3. Investment gains aren’t taxed

This is huge. Again, as long as you use your funds to cover qualifying medical expenses, your investment gains won’t be taxed.

How to use an HSA to aid your retirement

Keep in mind, you don’t have to use funds during the year you acquire them. If you choose not to use them on medical expenses for the year, your contributions will just roll over.

The great thing about using HSA funds during your retirement is that you can use them to cover medical expenses. Medical expenses are unpredictable, especially during retirement. So have a savings stash lined up to cover your medical costs can offer some financial relief as you get older and retire.

If you don’t want to use your HSA funds for medical expenses, once you reach the age of 65 or become eligible for Medicare, you can withdraw them for any purpose penalty-free.

What if you want to access your funds earlier than that? This article is all about understanding how HSAs work and how to use one to aid your early retirement.

If you’re on track to reach early retirement and want to withdraw HSA funds early for any purpose and have the withdrawal be penalty free, you can reimburse yourself for qualified medical expenses you’ve already paid.

According to, as long as the IRS-qualified medical expenses were incurred after your HSA was established, you can reimburse yourself with HSA funds at any time.

Let’s say you open up an HSA through your employer-medical plan and contribute the maximum each year. Meanwhile, you pay any medical bills you obtain in cash and keep contributing to your HSA and investing the funds.

You’re careful to hold on to each receipt after paying for your medical bills year after year. When you feel financially confident, you retire at, let’s say 45. During this time, you can reimburse yourself for medical expenses you paid in the past penalty-free and tax-free which allows you to enjoy more of your money during retirement regardless of how old you are.


It’s easy to use your HSA as part of your early retirement strategy. Given the triple tax advantage, ability to invest funds, and the reimbursement benefits, it makes sense for anyone who qualifies to open up an HSA and start contributing the maximum.

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