FSA vs HSA: Key Differences, Pros, Cons, and How to Choose

H1: FSA vs HSA: Which Tax-Advantaged Health Account Is Right For You?
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Navigating health insurance perks means understanding powerful tools for saving money. Flexible Spending Accounts (FSAs) and Health Savings Accounts (HSAs) are employer-sponsored benefits that let you set aside pre-tax money for medical expenses. But their rules are different. This definitive FSA vs HSA guide will help you understand the key differences and choose the best option for your financial and healthcare needs.

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H2: What is a Flexible Spending Account (FSA)?
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A Flexible Spending Account (FSA) is an employer-established account that lets you contribute pre-tax dollars from your paycheck to pay for eligible out-of-pocket healthcare expenses. It’s a use-it-or-lose-it account, typically with a grace period or a small carryover option.

H3: Key Features of an FSA:

• Ownership: Tied to your employer. You lose access if you change jobs (though you can often use funds for expenses incurred while you were enrolled).

• Contribution Limits (2024): $3,200 per year per employer.

• Use-It-Or-Lose-It: Funds generally must be used within the plan year, though plans may offer a grace period of up to 2.5 months or allow a carryover of up to $640 to the next year.

• Eligibility: Available to employees with any type of health insurance plan, offered through an employer.

• Pre-Funding: The entire annual election amount is typically available at the start of the plan year.

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H2: What is a Health Savings Account (HSA)?
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A Health Savings Account (HSA) is a portable, interest-earning savings account for individuals with a High-Deductible Health Plan (HDHP) to pay for qualified medical expenses. It is owned by you, not your employer, and funds roll over year after year indefinitely.

H3: Key Features of an HSA:

• Ownership: You own it personally. It stays with you even if you change jobs or health plans.

• Contribution Limits (2024): $4,150 for individual coverage | $8,300 for family coverage. Those 55+ can contribute an extra $1,000 catch-up contribution.

• Rollover: No “use-it-or-lose-it.” Funds roll over every year forever.

• Eligibility: Must be enrolled in a Qualified High-Deductible Health Plan (HDHP). Cannot be claimed as a dependent or enrolled in Medicare.

• Investment Potential: Funds can often be invested in mutual funds or stocks, allowing for tax-free growth.

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H2: FSA vs HSA: Side-by-Side Comparison Chart
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H2: Which Account is Right For You? FSA or HSA?
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• Choose an FSA if: Your employer offers it and you don’t have an HDHP. It’s perfect for predictable annual expenses (e.g., co-pays, dental work, glasses) and you’re confident you’ll use the funds.

• Choose an HSA if: You are enrolled in an HDHP and want a long-term savings vehicle. It’s ideal for building a nest egg for future medical costs in retirement, especially if you want investment potential and portability.

• Can you have both? In limited cases, yes. You can have an HSA and a Limited-Purpose FSA (for dental/vision only) or a Post-Deductible FSA (for expenses after your HDHP deductible is met).

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H2: Eligible Expenses for FSAs and HSAs
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Both accounts cover a wide range of IRS-qualified medical expenses, including:

• Deductibles, co-pays, and coinsurance

• Prescription medications

• Dental and vision care (glasses, contacts, orthodontia)

• Mental health counseling and therapy

• First aid kits, bandages, sunscreen, and menstrual care products

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H2: FSA and HSA FAQs
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H3: What happens to my FSA if I quit my job?
You generally forfeit any unused funds, though you can use the money for expenses incurred before your termination date. Some plans may offer COBRA continuation for your FSA.

H3: Can I invest the money in my HSA?
Yes, most HSA providers allow you to invest your funds in a menu of investment options (e.g., mutual funds) once your account balance reaches a certain threshold.

H3: Are over-the-counter drugs eligible?
Yes, with a prescription or as permitted by law (e.g., insulin is always eligible). Many OTC items like pain relievers and allergy medicine are now FSA/HSA eligible.