What is the Difference Between FSA and HSA?
🆚 Go to Comparative Table 🆚Health Savings Accounts (HSAs) and Flexible Spending Accounts (FSAs) are both pre-tax accounts designed to help you save for healthcare-related expenses. However, there are several key differences between the two:
- Eligibility: To qualify for an HSA, you must be enrolled in a High Deductible Health Plan (HDHP). FSAs do not have this requirement.
- Contribution Limits: HSAs generally have higher contribution limits than FSAs.
- Carryover Rules: Funds in an HSA roll over year to year, meaning you don't lose any unspent funds. In contrast, FSAs have a "use it or lose it" rule, where you may lose any unspent funds by the end of the plan year.
- Portability: HSAs are individually owned, which means you can take them with you when you change employers. FSAs, on the other hand, are employer-sponsored plans, and any funds contributed generally must be spent by the end of the plan year.
- Spending Oversight: HSA holders cannot spend more than the funds deposited in their account, while FSA holders can use their entire allotment from day one.
- Investment Options: Many HSAs offer investment options, allowing you to potentially grow your savings. FSAs do not have this option.
In summary, HSAs offer more flexibility and investment opportunities, while FSAs are subject to more restrictions. To choose between an FSA and an HSA, consider your personal financial situation, health plan, and eligibility for an HSA. If you are enrolled in an HDHP and can afford to contribute to an HSA, you may benefit from its higher contribution limits and carryover rules. However, if you do not qualify for an HSA, an FSA can still help you save for qualified medical expenses.
Comparative Table: FSA vs HSA
Here is a table comparing the differences between Flexible Spending Accounts (FSA) and Health Savings Accounts (HSA):
| Feature | Flexible Spending Account (FSA) | Health Savings Account (HSA) |
|---|---|---|
| Eligibility | Employer-sponsored insurance with no income limits | High-deductible health insurance (HDHP) with no employer insurance and income limits |
| Annual Contribution Limits | Determined by employer, up to $2,750 (2022 limit) | Determined by IRS, up to $3,600 for individuals and $7,200 for families (2021 limit) |
| Account Ownership | Employer-owned | Individually-owned |
| Rollover Rules | Withdrawals not allowed, contributions cannot be rolled over to the next year | Funds roll over year to year, no expiration |
| Employer Contributions | Employers can contribute, but it's not common (about 5% of workers received contributions in 2019) | Employers can contribute, but it's not common (about 5% of workers received contributions in 2019) |
| Qualifying Expenses | Covers medical care, dependent care (if designated as a Dependent Care FSA), prescription drugs, dental and vision care, over-the-counter medications, and other health-related items | Covers medical care, prescription drugs, dental and vision care, over-the-counter medications, and other health-related items |
| Tax Benefits | Contributions are pretax, distributions are tax-free for eligible medical expenses | Contributions are tax-deductible, growth and distributions are tax-free for eligible medical expenses |
| Withdrawals | Withdrawals are subject to taxes and penalties if used for non-qualifying expenses | Withdrawals are not subject to taxes or penalties if used for eligible medical expenses after age 65 |
Please note that you generally cannot have both an FSA and an HSA, unless the FSA is a "limited-purpose" FSA for dependent care expenses only.
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