What is the difference between a health savings account and a flexible spending account
| Aspect | Health Savings Account (HSA) | Flexible Spending Account (FSA) |
|---|---|---|
| Eligibility | Requires enrollment in a High Deductible Health Plan (HDHP) to qualify for an HSA. | Available to employees as part of an employer's benefits package, regardless of the type of health plan. |
| Ownership | Owned by the individual, and the account remains with them even if they change jobs or health plans. | Typically owned by the employer, and employees may not take the account with them if they change jobs. |
| Account Portability | Highly portable, and individuals can retain the HSA even if they change employers or health plans. | Generally not portable, and employees cannot transfer the account to a different employer or health plan. |
| Contribution Limits | Contribution limits are set by the IRS and may vary each year. For 2023, the annual contribution limit is $3,700 for self-only coverage and $7,450 for family coverage. | Contribution limits are set by the IRS and may vary each year. For 2023, the annual contribution limit is $2,850 for individual FSAs. |
| Tax Advantages | Contributions are made with pre-tax dollars, reducing taxable income for the year in which contributions are made. Withdrawals for qualified medical expenses are also tax-free. | Contributions are made with pre-tax dollars, reducing taxable income for the year in which contributions are made. Withdrawals for qualified medical expenses are also tax-free. |
| Rollover of Funds | Funds roll over from year to year, with no use-it-or-lose-it rule. HSA funds can accumulate and grow over time. | May allow for limited rollover options, such as a carryover of up to $570 (2023) or a grace period for spending unused funds. |
| Investment Options | HSA funds can be invested in a variety of options, including stocks, bonds, mutual funds, and other investment vehicles. | Limited investment options, and account holders may have few choices for growing their funds. |
| Use for Non-Medical Expenses | HSA funds can be used for non-medical expenses after age 65 without a penalty, though income tax still applies. | FSAs may have limited options for using funds for non-medical purposes, and withdrawals for non-qualified expenses are subject to income tax and an additional penalty. |
| Account Access | Access to HSA funds is based on actual contributions made to the account. Individuals can only withdraw funds that are available in the account. | Access to FSA funds is typically available from the start of the plan year, even if the full annual contribution amount has not yet been deposited. |
| Eligible Expenses | HSA funds can be used for qualified medical expenses, including deductibles, co-payments, prescription drugs, and certain other healthcare costs. | FSA funds can be used for qualified medical expenses, including deductibles, co-payments, prescription drugs, and certain other healthcare costs. |
| Medicare Eligibility | HSAs can be used to cover Medicare premiums (except for Medigap), making them useful for healthcare costs during retirement. | FSAs cannot be used to cover Medicare premiums, but they can be used for other qualified medical expenses. |
| Penalty for Non-Qualified Expenses | Withdrawals for non-qualified medical expenses are subject to income tax and an additional penalty, typically 20% for HSAs. | Withdrawals for non-qualified medical expenses are subject to income tax and an additional penalty, typically 20% for FSAs. |