What are HSAs and FSAs?

Jul 11, 2019

Health Savings Accounts (HSA)

Health Savings Accounts are for the purpose of paying for healthcare expenses and are initially connected to a high-deductible health insurance plan. Participants contribute money on a pre-tax basis and then withdraw money on a tax-free basis to use for eligible healthcare expenses. HSAs do not expire and can continue to hold balances well after someone rolls off the high-deductible insurance plan. When taken advantage of, HSAs allow participants to contribute tax-free dollars over many years that will eventually be used to cover healthcare expenses. As a bonus, many HSAs even allow the money to be invested to allow for significant long-term, tax-free growth.   Read Next: Are You Making the Most of Your HSA?

Flexible Spending Accounts (FSA)

Flexible Spending Accounts have many similarities to HSAs. These accounts can be offered by employers, and employees are able to contribute pre-tax dollars which can then be used to reimburse eligible healthcare expenses. Some plans also reimburse for both childcare and dependent care expenses. Unlike HSAs, FSAs have a “use it or lose it” rule. While some plans allow for $500 to be carried over into the next year, FSAs do require most, if not all, of the contributions to be reimbursed by a specific time each year. For example, many plans have a deadline of March 15th of the following year. FSAs cannot be invested so the values do not have an opportunity to earn money.

HSA vs. FSA

Both HSAs and FSAs can be good options. It is important to note that each plan has specific rules, including contribution limits, so be sure to understand the mechanics of any plans that are available. Also, there could be expenses involved. Finally, there is no double dipping. Any benefit that you get from one plan cannot duplicate a benefit from the other plan.

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