Flexible Spending Account (FSA) vs. Health Savings Account (HSA)

1. Eligibility

• FSA

  • Available through an employer benefit plan only.

  • No requirement to have a specific type of health insurance.

  • Not tied to a High-Deductible Health Plan (HDHP).

• HSA

  • You must be enrolled in a qualified HDHP (High-Deductible Health Plan).

  • Cannot be enrolled in Medicare.

  • Cannot be claimed as a dependent on someone else’s tax return.

  • Cannot have other disqualifying coverage (e.g., general purpose FSA).

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2. Ownership

• FSA → Owned by the employer.

  • If you leave your job, the account generally does not go with you (exceptions: COBRA continuation or grace periods).

• HSA → Owned by you, the individual.

  • The money stays with you forever, even if you change jobs, retire, or switch insurance.

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3. Contributions (2025 limits)

• FSA

  • Employee contribution limit: $3,200 (set by IRS, may change annually).

  • Employer may also contribute.

• HSA

  • Individual: $4,300

  • Family: $8,550

  • Additional “catch-up” contribution: + $1,000 per year if age 55+.

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4. Tax Advantages

Both are triple tax advantaged in slightly different ways:

• Contributions: Pre-tax (reduce taxable income).

• Withdrawals: Tax-free when used for qualified medical expenses.

• Growth:

  • FSA → No investment growth; funds do not earn interest.

  • HSA → Can be invested (like a 401k/IRA) and grow tax-free.

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5. Spending Rules

• FSA

  • “Use it or lose it”: Funds must be used within the plan year.

  • Employers may offer either:

    • A grace period (up to 2.5 months extra), or

    • A carryover (up to $640 in 2025).

• HSA

  • No expiration: Funds roll over year to year, no limit.

  • Can be used now or saved for future healthcare costs (even in retirement).

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6. Qualified Expenses

• Both FSAs and HSAs can be used for:

  • Doctor visits, prescriptions, hospital services, lab tests, dental, vision, medical devices, etc.

  • Some OTC drugs and menstrual products.

• HSA unique perk → After age 65, withdrawals for non-medical expenses are allowed (taxed like income, no penalty). Before 65, non-medical withdrawals are subject to 20% penalty + income tax.

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✅ Quick Comparison Table

Feature	FSA	HSA
Eligibility	Employer plan only	Must be in HDHP, not on Medicare
Ownership	Employer	Individual
Contribution Limit (2025)	$3,200	$4,300 (self) / $8,550 (family) + catch-up
Rollover	Limited ($640 or grace period)	Unlimited, never expires
Investments	❌ No	✅ Yes
Job Portability	❌ No	✅ Yes
Non-medical use	❌ Not allowed	✅ Allowed after 65 (taxed)

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🔑 Summary

• FSA → Best for employees with predictable annual expenses, who want pre-tax savings but don’t need portability.

• HSA → Best for those on a High-Deductible Health Plan, who want long-term savings, investment options, and retirement healthcare funds.