Health savings accounts (HSAs) and flexible spending accounts (FSAs) allow you to make pretax contributions and use the funds to pay for health care costs. They have similarities but major differences too. HSAs have some advantages over FSAs, so they’re a better option if you have a high deductible health plan.
In this article, we compare FSA vs. HSA, define the rules for each account and explain how you can choose.
While HSAs and FSAs are alike in many ways, they have notable contrasts like account eligibility, contribution limits, year-to-year rollover rules and account ownership. Here’s how HSAs and FSAs stack up:
|Health savings account (HSA)||Flexible spending account (FSA)|
|Who’s eligible to open an account?||Anyone with an active high deductible health plan (HDHP)||Employees with an employer-sponsored health insurance plan|
|What expenses can I use my funds for?||Qualified medical expenses, including dental, vision and supplies||Qualified medical expenses, including dental, vision and supplies|
|How will I be reimbursed?||You can use an HSA debit card or transfer funds to cover purchases||You can use an FSA debit card or submit expenses to your employers for reimbursements|
|What are the tax benefits?||Untaxed contributions, tax-free investment earnings||Untaxed contributions|
|What are the annual contribution limits?||$3,650 for individuals, $7,300 for families||$2,850 for individuals, $4,900 for families|
|Will employers match contributions?||Some employers will match contributions up to the limit||Some employers will match contributions up to the limit|
|Can I change my contributions?||Yes, you can change them at any time||Yes, but only during open enrollment or qualifying life events|
|Do funds rollover the next year?||Yes, your funds automatically roll over each year||There can be a 2 ½ month grace period or the option to roll over some funds|
|Who owns my account?||You own your HSA||Your employer owns your FSA|
HSAs and FSAs work in the same fundamental way. You can contribute money to your account tax-free — sometimes alongside employer contributions — and use those funds to pay for various medical expenses.
Both have contribution limits, but HSAs have higher limits. Both allow you to make automatic payroll contributions, but HSAs offer more flexibility in contributing funds. Companies and health insurance plans might also define qualifying medical expenses differently.
HSAs have some benefits over FSAs: You can roll funds over to the next year, make prior-year contributions for an income tax break and you keep your account for life. Meanwhile, employers own FSAs so you must use the funds in time or lose them.
Health savings account rules let you make pretax or tax-deductible contributions to save or invest your money before using the funds to pay for qualified medical expenses. If you’re eligible to open one, an HSA gives you more flexibility, higher contribution limits and the ability to keep your account, even if you open it with an employer and leave your workplace.
Here are some of the benefits of opening an HSA instead of an FSA.
A flexible spending account is an employee account where you can make pretax contributions and submit reimbursement requests to your employer for qualified medical expenses. Rules prevent you from rolling over your entire FSA balance to the following year, employer contributions might be less likely, and you have limited opportunities to set your contribution amounts.
Here are a couple of circumstances when opening an FSA would be your best option.
Ultimately, the choice might depend on whether you have or want a high deductible insurance plan. Those plans tend to have lower monthly premium payments, but you may be on the hook for significant costs paying up to your deductible — the minimum out-of-pocket expense before your insurance plan kicks in.
If you have an HDHP, an HSA would be better than an FSA for some of the reasons outlined above: you don’t lose any money at year-end, you can contribute to and use your funds in more ways, and the maximums for HSAs are higher than the maximums for FSAs. An employer is more likely to contribute to an HSA than an FSA too.
Since health savings accounts have some advantages compared to flexible spending accounts, you’ll probably want an HSA if you have a high deductible health plan. If you choose to open an HSA on your own, review our list of the best health savings accounts. But, since flexible spending accounts are available to those who don’t have an HDHP and have many of the same benefits, they’re a good alternative.
The IRS defines medical expenses as the costs of prevention, diagnosis or treatment of disease or costs to affect any body part or bodily function. Those expenses would generally qualify for HSA or FSA reimbursement, but different insurers may have different rules.
You cannot open both a health savings account and a general purpose flexible spending account. Certain kinds of FSAs — limited-purpose or post-deductible flexible spending accounts — are compatible with an HSA.
A health savings account has some advantages over a flexible spending account, but flexible spending accounts are available to employees with regular health insurance plans instead of high deductible plans, unlike health savings accounts.
Yes, you are sometimes given a debit card with your HSA or FSA, but not all accounts have debit card access.