Health Savings Accounts (HSAs) and Flexible Spending Accounts (FSAs) are both tax-advantaged accounts designed to help individuals save money for healthcare expenses, but they have distinct features and eligibility requirements.
What is an HSA?
- An HSA is a tax-advantaged savings account available to individuals who have a high-deductible health plan (HDHP).
- It allows you to contribute pre-tax money to pay for qualified medical expenses.
- HSAs offer a triple tax benefit: contributions are tax-deductible or pre-tax if through payroll, earnings grow tax-free, and withdrawals for qualified expenses are tax-free.
- The funds in an HSA roll over year to year with no limit, allowing the balance to grow over time.
- The account is owned by the individual, making it portable if you change jobs or retire.
- Contributions limits for 2025 are $4,300 for individuals and $8,550 for families, with an additional catch-up contribution of $1,000 for those aged 55 or older.
- HSAs may allow investment of funds in mutual funds or ETFs, depending on the provider
What is an FSA?
- An FSA is an employer-sponsored account that lets you set aside pre-tax money for eligible healthcare expenses.
- FSAs are only available through your employer; you cannot open one independently.
- Contributions are typically set at the start of the year and cannot be changed unless a qualifying life event occurs.
- The funds are owned by the employer, and generally, unused funds are forfeited at the end of the plan year ("use-it-or-lose-it"), though some employers offer a grace period or allow a small amount to carry over.
- FSAs are not portable; if you leave your job, you lose any unused funds unless you elect COBRA continuation coverage.
- Contribution limits for 2025 are $3,300 for individuals and $6,600 for households.
- FSAs do not earn interest and funds cannot be invested
Summary Table
Feature| HSA| FSA
---|---|---
Eligibility| Must have HDHP| Employer offers FSA
Ownership| Individual| Employer
Contribution Limits (2025)| $4,300 individual / $8,550 family| $3,300
individual / $6,600 household
Portability| Yes| No
Rollover| Yes, unlimited| Generally no, some carryover allowed
Tax Benefits| Triple tax advantage| Pre-tax contributions
Investment Options| Yes| No
Changes to Contributions| Anytime during the year| Usually fixed, changes only
with qualifying events
In essence, HSAs offer more flexibility, portability, and long-term savings potential, while FSAs are more restrictive but can still provide tax savings for healthcare expenses if offered by your employer
