In the workplace, you will hear about “Flexible Spending Accounts” (FSA) and “Health Savings Accounts” (HSA). Both are types of savings accounts that allow individuals to set aside money for qualified medical expenses. However, there are key differences between the two.
- Eligibility: To open and contribute to an HSA, you must be enrolled in a high-deductible health plan (HDHP) and not be enrolled in Medicare.
- Ownership: FSAs are owned by your employer, while HSAs are owned by the individual.
- Rollover: FSA funds are typically lost at the end of the year, whereas HSA funds roll over indefinitely.
- Contribution Limits: HSA contribution limits are generally higher than FSA limits, and HSAs also allow for catch-up contributions if you’re over 55.
- Use of Funds: Both can be used for medical expenses, but an HSA offers more flexibility in terms of long-term savings, as funds grow tax-free and can be used for retirement after age 65 (though they may be taxed if used for non-medical expenses.)
In short, FSAs are more flexible for short-term medical needs but have limitations around annual rollover, while HSAs offer more long-term benefits and investment opportunities, especially for those with a high-deductible health plan.