But the two accounts are otherwise quite different.
Let’s look at some of the most important differences.
You cant take it with you.
PraewBlackWhile / Getty Images
Spending vs Saving
FlexibleSpendingAccounts are structured to encourage you tospendmost or all of the money in it.
HealthSavingsAccounts, on the other hand, are structured to encourage you tosave.
You cant invest the money set aside in an FSA, and it’s not an interest-bearing account.
Your employer cant touch it, and theres no end-of-the-year deadline to use it or lose it.
Interest and earnings grow tax-deferred.
The employer decides the eligibility rules, and the account is linked to your job.
To participate in an HSA, you must have an HSA-qualified High Deductible Health Plan or HDHP.
Not all employers offer HDHPs, but they can be purchased in the individual/family market, throughthe exchangeoroff-exchange.
So you might also need to change your health plan to be eligible to start contributing to an HSA.
The HSA is designed to help you cope with the high deductibles associated with HDHP health insurance plans.
You cant even use your FSA money to pay yourCOBRAhealth insurancepremiums.
With an HSA, youre not locked into an entire year of contributions.
you’re free to change your contribution amount if you choose to.
Anyone can contribute to your HSA: your employer, you, your parents, your ex-spouse, anyone.
With an HSA, the buck stops with you.
Youre responsible for accounting for HSA deposits and withdrawals.
However, you must also be willing to pay the penalties.
It’s also possible to treat your HSA as an emergency fund without incurring any taxes or penalties.
Here’s how it works.
There’s no tax or penalty in this case since you’re just reimbursing yourself for medical expenses.
With an FSA, you wont be allowed to withdraw the money for anything other than acurrenteligible medical expense.
You cant use your FSA money for non-medical emergency expenses, no matter how desperate you are.
Then you might use the HSA money, still tax-free, to pay for those expenses.
Youll have a negative FSA balance, but your contributions will continue with each paycheck.
At the end of the year, your FSA balance will be zero.
Internal Revenue Service.IRS: 2024 Flexible Spending Arrangement contribution limit rises by $150.
Internal Revenue Service.New law provides additional flexibility for health FSAs and dependent care assistance programs.
Internal Revenue Service.Revenue Procedure 2022-24.
Internal Revenue Service.Revenue Procedure 2023-23.
Internal Revenue Service.Publication 969 (2020), Health Savings Accounts and Other Tax-Favored Health Plans.
Fidelity.Five Ways HSAs Can Help With Your Retirement.
Internal Revenue Service.About Publication 969, Health Savings Accounts and Other Tax-Favored Health Plans.
