What is the difference between an HSA and an FSA?
Ownership: An HSA is owned by the individual, while an FSA is owned by the employer.
Eligibility: To be eligible for an HSA, you must be enrolled in a high-deductible health plan (HDHP).
FSAs can be offered by any employer, regardless of the health plan.
Contribution Limits: In 2024, the annual contribution limit for an HSA is $3,850 for an individual and $7,750 for a family.
The FSA limit is set by the employer and is typically lower, around $2,850 per year.
Tax Benefits: Contributions to an HSA are made with pre-tax dollars, and withdrawals for qualified medical expenses are tax-free.
FSA contributions are also made with pre-tax dollars, but unused funds are forfeited at the end of the plan year.
Portability: HSA funds belong to the individual and can be carried over from year to year or even into retirement.
FSA funds are use-it-or-lose-it and cannot be carried over to the next year.
Investment Options: HSA funds can be invested in a variety of investment vehicles, allowing the account to grow over time.
FSAs do not typically offer investment options.
Withdrawal Flexibility: HSA withdrawals can be used for a wider range of qualified medical expenses, including some over-the-counter medications and certain types of preventive care.
FSA withdrawals have more restrictions.
Retirement Savings: HSA funds can be used for qualified medical expenses in retirement, effectively serving as a supplemental retirement account.
FSA funds cannot be used for retirement expenses.
Changing Jobs: HSA funds remain with the individual if they change jobs, while FSA funds are typically forfeited upon leaving the employer.
Employer Contributions: Employers can contribute to an employee's HSA, but they cannot contribute to an employee's FSA.
Deductible Requirements: To open an HSA, you must be enrolled in a high-deductible health plan (HDHP) with a minimum deductible of $1,500 for individual coverage or $3,000 for family coverage in 2024.
FSAs have no deductible requirements.
Accrual of Unused Funds: Unused HSA funds can be rolled over and accumulate year after year, while unused FSA funds are typically forfeited at the end of the plan year (with some exceptions).
Impact on Health Insurance Premiums: Enrolling in an HDHP with an HSA can potentially lower your health insurance premiums compared to a traditional health plan, but FSA participation does not affect health insurance premiums.
Coordination with Medicare: HSA contributions must stop once you enroll in Medicare, but FSA funds can be used to pay for Medicare premiums and other qualified expenses.
Reporting Requirements: HSA contributions and withdrawals must be reported on your tax return, while FSA participation is reported on your W-2 form.
Impact on Health Savings: HSAs can be used to build long-term savings for healthcare expenses, while FSAs are more focused on short-term expense reimbursement.
Qualifying Expenses: Both HSAs and FSAs can be used to pay for a wide range of qualified medical expenses, but the lists of eligible expenses may differ slightly between the two account types.
Suitability for Different Life Stages: HSAs are often better suited for younger, healthier individuals who can contribute and let the funds grow over time, while FSAs may be more beneficial for those with predictable, short-term medical expenses.
Employer Involvement: FSAs are typically offered and managed by employers, while HSAs are individual accounts that can be opened with a variety of financial institutions.
Coordination with Other Accounts: HSAs can be used in conjunction with other healthcare accounts, such as Medicare or a Health Reimbursement Arrangement (HRA), while FSAs generally cannot be combined with these types of accounts.