What is the difference between a Flexible Spending Account (FSA) and a Health Savings Account (HSA)? This article will explain the difference between these account options. That way, you can decide what is best for you and your family.
What Is a Flexible Spending Account (FSA)?
A Flexible Spending Account (FSA) is a special account where you can deposit money for eligible medical expenses. The major benefit of an FSA is that money deposited into FSAs is not taxed. Eligible medical expenses vary from plan to plan, but copayments and deductibles are usually included. Some FSAs also cover medical expenses for dependents.
What Is an HSA?
Health Savings Accounts (HSAs) are another type of special account where you can deposit money for eligible medical expenses. The money deposited into HSAs is also not taxed, and eligible expenses vary depending on your plan. Copayments and deductibles are often included, and some plans may cover dependent medical expenses.
What Is the Difference Between an FSA vs HSA?
The contribution allowances and rollover for an FSA vs HSA are the biggest differences. FSA contribution limits are $2,750 annually. In contrast, HSA contributions limits are $3,600 for individuals and $7,200 for families. FSAs usually do not allow contributions to roll over annually (use it or lose it), while HSAs do allow contribution rollover. 1
You may be able to temporarily roll over unused funds from an FSA account for plans ending in 2021 or 2022. However, you should confirm this rollover opportunity before leaving any unused funds sitting around.1
What are the advantages of FSAs and HSAs?
FSAs and HSAs are like medical IRAs, allowing you to save money tax-free against future expenses. And the tax payoffs can be significant. They can reduce your taxable income, potentially resulting in lower income tax payments each year. They can provide a safe means of saving money for health-related expenses — once you’ve put aside the money, you usually can’t use it for anything except qualifying medical expenses without penalty.
Under some circumstances, HSAs may allow you to take a deduction on your overall taxes at the end of the year. And rather than using complex reimbursement procedures, FSAs and HSAs often simply issue you a debit card for you to use while paying for your medical expenses. In short, these accounts can be convenient and can save you money.
Should I choose an HSA or an FSA?
If you qualify, HSA funds accrue year after year. In the long run, this can leave you with a nest egg for unexpected medical costs. If you contribute a larger amount to your HSA, the funds may also gain interest that can be tax-free. However, HSAs tend to be restricted to high-deductible health plans (HDHPs).
If you don’t qualify for an HSA, a well-managed FSA can help offset your health costs while offering many of the same tax benefits an HSA confers. There are different types of FSAs, and they pay for a wide range of services; for instance, FSAs may have benefits for child care expenses. These features may make them a better choice for some people, even though FSA funds usually don’t roll over.
Compare Plans with FSA or HSA Options Today
Understanding these two different accounts may seem daunting, but HealthMarkets can help you find the right plan that’s best for your unique needs. Get started reviewing your options today.