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Healthcare FSAs vs. HSAs: Which is right for you?

By Sara Taylor | October 22, 2024

Both HSAs and FSAs offer tax benefits when managing medical expenses, but differ in eligibility contributions and rollover options. Understanding these helps align with financial goals.
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Healthcare FSAs vs. HSAs: Which is right for you?

Choosing between a Healthcare Flexible Spending Account (FSA) and a Health Savings Account (HSA) can be a crucial decision for your employees in managing their medical expenses. Both accounts offer tax advantages but cater to different needs and circumstances. Understanding the key differences, such as eligibility requirements, contribution limits, and rollover options, can help your employees determine which account best aligns with their healthcare and financial goals.

To determine whether a Healthcare FSA or HSA is the right fit, employees should consider the following factors:

Eligibility

Eligibility

  • HSA: Employee must be enrolled in a high-deductible health plan (HDHP)
  • FSA: Available with most employer-sponsored health plans
Contribution limits

Contribution limits

  • HSA: Higher contribution limits ($4,300 for individuals and $8,550 for families in 2025). If you and your family are covered by the same qualifying health plan, then your contribution limit is increased to the annual contribution limit set for families.
  • FSA: Lower contribution limits ($3,300 in 2025)
Tax benefits

Tax benefits

  • HSA: Contributions are tax-deductible, grow tax-free, and withdrawals for qualified medical expenses are tax-free
  • FSA: Contributions are pre-tax, reducing your taxable income and withdrawals for qualified medical expenses are tax-free
Rollover options

Rollover options

  • HSA: Funds roll over year to year with no limit
  • FSA: Typically, funds must be used within the plan year, though some plans offer a grace period or allow a small amount to carry over to the next year
Portability

Portability

  • HSA: The account stays with the employee, even if they change jobs or retire
  • FSA: Generally, the funds are lost if the individual leaves their job. Employees may request reimbursement for expenses incurred before they leave the company.
Investment opportunities

Investment opportunities

  • HSA: Funds can be invested, potentially growing savings over time
  • FSA: No investment options; funds are meant to be spent within the plan year
Qualified medical expenses

Qualified medical expenses

  • Both accounts can help cover a wide range of medical expenses, but it’s important to check specific plan details.

By carefully considering their plan options, your employees can choose the account that best supports their healthcare and financial goals, ensuring peace of mind and financial security for the future.

Author

Sara Taylor
Senior Director, Employee Spending Accounts

Sara has more than 31 years of experience bringing strategic direction and innovation to benefits outsourcing solutions. Her broad benefits experience includes health and welfare plan administration, spending account administration, healthcare advocacy, compliance solutions, and individual Medicare and exchanges. Sara is recognized for her deep subject matter expertise and ability to strategize and solution broadly across multiple services. Sara also has extensive experience leading strategic partnership relationships and merger and acquisition activities.

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