HSA vs FSA: Which account is right for me?

When it’s time to elect annual benefits, many have the option to choose between a Health Savings Account (HSA) and a Flexible Spending Account (FSA). The two accounts are similar in that both help boost your spending power by letting you make pre-tax payroll contributions to spend tax-free money on qualified medical expenses.

But there are important differences to keep in mind. Each account has its pros and cons, and the better option generally depends on your unique situation. Also, eligibility for the two accounts vary.

Here are three questions to consider as you decide which account is right for you.

#1 What kind of health plan do I want?

Probably the biggest difference between the two accounts comes down to health plan preference and eligibility. Health Savings Account eligibility requires enrollment in a high-deductible or HSA-qualified health plan. So, if you want to contribute to an HSA, you’ll need to enroll in a high-deductible health plan.

By contrast, virtually any health plan is compatible with a Flexible Spending Account, provided that one is offered by your employer.

In general, high-deductible health plans carry higher deductibles, but also much lower premiums. Traditional health plans are usually the opposite: Higher premiums, lower deductibles.

Not sure if a high-deductible health plan is right for you? Check out this article.

#2 When do I need the money?

One of the biggest perks of a Flexible Spending Account is that the entire annual contribution amount is made available on day one of the plan year. So, if you plan to contribute, say, $1,500 for the plan year, the entire $1,500 will be available on day one, even though you will make payroll contributions throughout the year.

In other words, FSAs work a lot like a cash advance from your employer (for eligible medical expenses).

The drawback of this arrangement, however, is that funds in your Flexible Spending Account expire at the end of each plan year, and unused account dollars are eventually returned to your employer.

In other words, FSAs are use-it-or-lose-it accounts.

Note, however, some organizations offer carryover and grace period options to extend fund availability. Be sure to review your plan documents carefully to see what’s available.

When it comes to the Health Savings Account, however, funds never expire. You keep the money in your account even if you change employers, health plans, or retire.

Unlike an FSA, the HSA is a member-owned account. This means you can open an HSA—and make HSA contributions—even if an HSA is not offered by your employer.

You can always view the latest IRS contribution limits at this page.

The best part: Only an HSA lets you build long-term health savings. Because an HSA is a member-owned account, you can save money for expenses well into the future.

In short, if you want to save money for the long-term, HSAs could be a great option. You can use that money down the road to pay for thousands of qualified medical expenses. See all the things you can buy at the HSA Store.¹

#3 Do I want to invest my money?

Finally, HSAs offer the incredible opportunity to invest your account funds. FSAs do not let you invest, which means whatever money you put in is the money you get. By contrast, you can invest your HSA and any potential growth accrues on a tax-free basis.²

For this reason, members may treat their HSA like a complementing retirement account to their 401(k). Just like a 401(k), they make pre-tax contributions and enjoy tax-free earnings. An HSA even brings an extra advantage: You can take tax-free distributions from your HSA at any time to pay for qualified medical expenses.³ Distributions from a 401(k), on the other hand, are always taxed as ordinary income (and in most cases you have to wait until a certain age).

Many members choose HSA over FSA merely for the opportunity to invest their HSA and take advantage of potential tax-free account growth.

Have questions? Visit our Help Center.

Ready to shop? Visit the HSA Store¹ or the FSA Store.⁴