Following are the key differences and similarities between these two great financial tools that help to control healthcare costs.

A Flexible Spending Account (FSA) and a Health Savings Account (HSA) both are a type of savings account that lets you set aside money on a pre-tax basis to pay for qualified medical expenses.  The contribution limits for an FSA and HSA vary slightly.

Available through employer sponsor only

Employees choose the contribution amounts to an FSA, which are deducted from their gross pay and reduce taxable income. You can sign up for an FSA during your employer’s open enrollment, and any health plan, or even no health plan qualifies for an FSA.

Available regardless of employment status

Anyone can have an HSA as long as they have a High Deductible Health Plan. If you don’t have an HSA through work, then you can sign up on your own with an HSA provider and make contributions directly, which you can declare on your annual taxes, therefore reducing your taxable income. You can not have both an FSA and HSA in the same year

Use it or lose it feature, no investment options

The annual contribution limit for an FSA is 3,050. FSAs do not offer investment options. If you do not use your funds by the of the end of the year, they do not carry over, they are forfeited. However, the entire amount is available on day one of the new year.

Unused funds carry over; investing allowed

The 2023 HSA annual contribution limit is 3,850 ($7,750 for a family). Funds in an HSA roll over year to year. Many HSAs offer investment options – you can put part or all of your contribution in the market. You cannot spend more than the funds deposited in the HSA, but you can be reimbursed later after you have grown the savings.

Budgeting for healthcare expenses

Because the entire annual FSA contribution is available on day one, those with specific conditions or illnesses, or a growing family could benefit greatly from being able to cover the expenses of various doctor appointments and other illnesses that are quite common throughout the year, such as flu’s, earaches, sore throats, allergies, and even the occasional broken bone.

Saving for the future or a rainy day

An HSA offers a lot of savings benefits for those who are relatively healthy and do not expect to have that many healthcare expenses. Contributions are tax free and grow interest, and they roll over. And if they have to use the funds, they can also withdrawal tax free. A person can always start with smaller contributions and adjust as their family grows and needs change.

Part of the MR HEALTH INSURANCE – Health Insurance 101 Series

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