HSA vs FSA: How Do They Differ?

HSA vs FSA: How Do They Differ?

March 13, 2020
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If your employer offers both health savings accounts and flexible spending accounts, you might wonder how they differ. Learn all about HSA vs FSA accounts.

How would you handle a sudden waterfall of medical expenses?

For the millions of Americans with HSAs or FSAs, these special savings accounts offer a helping hand.

Do you know which one has the features you need? Start with these key essentials to determine the differences between an HSA vs. FSA.

What Are HSAs and FSAs?

Health savings accounts (HSAs) and flexible spending accounts (FSAs) are unique savings accounts that employers often offer as extra benefits.

The basic idea of both accounts is the same. You contribute to your account pre-tax, and you can use the contributions to pay for healthcare costs.

Both employers and employees can contribute to HSAs and FSAs.

HSA vs. FSA: The Key Differences

Despite their similarities, there are important differences to know about as well.

Special Qualifications

Not everyone is eligible to take advantage of an HSA and FSA.

To have an HSA, you need to have a high-deductible health insurance plan. Specifically, your deductible must be over $1,400 for individual plants or $2,800 for families. Your annual out-of-pocket expenses must also be under $6,900 for individuals or $13,800 for families.

For an FSA, your insurance situation doesn't matter. However, you need to be an employee, not a self-employed person, to have an FSA.

Contribution Limitations

Both HSAs and FSAs have distinct contribution limits, so they may not cover all your medical expenses.

The limit for an HSA is $3,550 per year for an individual or $7,100 for a family. If you're over 55, though, you can contribute an extra $1,000.

With an FSA, on the other hand, the maximum contribution is $2,750,

Account Ownership

HSAs and FSAs are usually offered by employers, and with an FSA, that means the account is in the employer's name. The problem with this is that if you leave your employer, you forfeit any money in your FSA.

HSAs, on the other hand, are in the employee's name. The money can follow you to other employers or self-employment.

Handling Extra Funds

What happens when you don't use all the money in your HSA or FSA? It's different depending on the type of account you have.

With an HSA, you can rollover the funds from year to year as often as you want.

In an FSA, however, your funds are only available for each calendar year. Your employer can give you some wiggle room if they choose: either a 2.5-month grace period at the beginning of each year of $500 of carryover from year to year.

Fund Availability

Another major difference between FSAs and HSAs is when the funds are available An HSA works like any other savings account: you contribute a certain amount with each paycheck, and the money is available when you deposit it.

With an HSA, though, you choose your contribution for the year during your open enrollment period. While your contributions come out of each paycheck, you can use the full amount you selected before you deposit it.

It's important to understand that should you leave your employer mid-year and you've used more than you've contributed, you must pay the difference.

Understanding your Healthcare Cost Options

Medical expenses are serious considerations for anyone's financial stability, but you don't have to go it alone. Now that you understand how they work, consider your HSA vs FSA options.

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