Keeping the early retirement "FIRE" burning through your HSA

If retiring early is a goal of yours, an HSA can be an invaluable tool. Here's how:

Why FIRE fans should consider an HSA

An HSA is quite nearly a perfect retirement vehicle. You can deduct HSA contributions on your taxes, withdraw the money tax-free and keep the money in your HSA until your last days.

Anyone eligible for an HSA can contribute up to $4,300 a year if participating in the health plan as an individual and $8,550 a year if participating as a family. That's slightly less than the IRA contribution limit for individuals, but it's still a sizable sum.

HSAs also have generous growth potential, and can be carried in perpetuity, so you can use the money whenever you want - as long as it's for qualified medical expenses. If you start contributing to an HSA in your 20s, you can use the funds for knee surgery or any other procedures you might need in your 60s.

Someone who wants to retire at 45 will need to buy their own health insurance in middle age, and healthcare premiums increase as you get older. Because most early retirement devotees retire while not being eligible for Medicare, they have to buy it off the Marketplace or through a health care ministry.

That means they're paying high premiums while waiting for Medicare to kick in. To bridge the gap between early retirement and Medicare, early retirees should look into opening an HSA while they're young.

Think of an HSA like a retirement account for your medical bills. People who retire early will face higher premiums and deductibles, especially compared to the employer-sponsored health insurance they've probably grown accustomed to. With an HSA, they'll have a reliable source of money to cover their health care expenses until Medicare.

You can even continue using an HSA once you have Medicare. If you're 65 and older, you can use an HSA on any expense without paying the 20% penalty. If you're 65 and have Medicare, you can use the HSA on Medicare premiums.

If you invest money in an HSA for 20 years without ever withdrawing from it, you'll have even more money for your healthcare needs. Fund selection can be smaller with an HSA, but you can definitely find suitable options for any age or risk tolerance.

If you've maxed out your IRA and 401(k), maxing out your HSA should be the next step in your early retirement plan. And in our experience, only after you've maxed out an HSA should you move on to taxable brokerage accounts. But of course, we're not experts -- to get the best advice for your situation, be sure to speak to a licensed financial professional.

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