Is an HSA Your Best Friend for Early Retirement?

Shobin Uralil

Early retirement takes dedication, planning and expert tax-savings. While your personal strategy might be unique, clearly the more you save of your own money, the faster it can grow. Let us show you how to leverage an HSA to get to retirement faster.

Unparalleled Tax-Savings

An HSA offers unparalleled tax-savings. It is the only savings account on the market that allows for tax-deductible contributions, tax-free growth, and tax-free distributions (as long as they are used for qualified out-of-pocket medical expenses).

Low-Cost Healthcare

It’s likely that in early retirement, you will still require healthcare, before Medicare starts. HSA-eligible healthcare plans like high deductible health plans (HDHP) are the most cost-effective health insurance on the market. Their lower monthly premiums ensure you keep your fixed costs low. Their set out-of-pocket yearly maximums set the ceiling for any unexpected health costs, capping your financial exposure.

Coupling an HDHP with an HSA ensures you have pre-tax funds ready for any health expenses that come your way this year or in years to come. Those pre-tax funds limit your tax-liability and effectively reduce the real-dollar costs of medical expenses.

Like a 401(k), but Better

You want options. Savings options. Investing options. Tax options. HSAs enable all three. An HSA is like a 401(k), but better. It provides the dedicated funds you want later in life but doesn’t lock those funds until 59 and 1/2 years of age like a 401(k) (unless you are willing to pay tax penalties).

You can use tax-free HSA funds for qualified medical expenses today or save them for tomorrow. In fact, after the age of 65, those funds can be used for anything, just like a 401(k) – just pay taxes. No penalty.

Additionally, HSAs don’t require mandatory distributions in retirement. You can let your HSA investments grow into your 70s, 80s, and 90s.

Self-Directed Investing

Early retirement requires an independent mindset. HSAs allow you to apply that mentality to self-directed investing. This ensures you can tailor your HSA investments as part of a larger savings strategy. Please check with your current or prospective HSA provider, so you can invest in what you want. Maybe a low-cost ETF?

An HSA ensures you maximize your tax savings and better prepare for future health costs. The result is more tax-free savings and investment options for early retirement. Use an HSA as an effective tax-savings and investment strategy for both healthcare and retirement. Turns out HSAs are great for both!

About Retire Early Lifestyle

Billy and Akaisha Kaderli retired two decades ago at the age of 38 and began traveling the world. As recognized retirement experts and internationally published authors on topics of finance and world travel, they have been interviewed about retirement issues by The Wall Street Journal, Kiplinger's Personal Finance Magazine, The Motley Fool Rule Your Retirement newsletter, nationally syndicated radio talk shows and countless newspapers and TV shows nationally and worldwide. They wrote the popular books The Adventurer's Guide to Early Retirement and Your Retirement Dream IS Possible.
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