What is the difference between flexible spending account and health savings account
| Aspect | Flexible Spending Account (FSA) | Health Savings Account (HSA) |
|---|---|---|
| Tax Advantages | Contributions are made with pre-tax dollars, reducing taxable income. Withdrawals for qualified medical expenses are tax-free. | Contributions are made with pre-tax dollars, reducing taxable income. Withdrawals for qualified medical expenses are tax-free. Additionally, unused funds can be invested and grow tax-free. |
| Eligibility | Offered by employers as a benefit to employees. Anyone can participate, regardless of the type of health insurance coverage they have. | Available to individuals with a High Deductible Health Plan (HDHP). Not tied to employer-sponsored insurance, and individuals can open and fund their own accounts. |
| Contribution Limits | Contribution limits are set annually by the IRS. For 2022, the annual limit is $2,750 for an individual. | Contribution limits are also set annually by the IRS. For 2022, the annual limit is $3,650 for an individual and $7,300 for a family. Catch-up contributions are allowed for those aged 55 or older. |
| Rollover of Funds | Typically, there is a "use it or lose it" rule, where unused funds at the end of the plan year are forfeited, with a grace period or carryover option of up to $550 (or 2.5 months) allowed by some employers. | HSAs do not have a "use it or lose it" rule. Unused funds roll over from year to year and can be invested, potentially growing over time. |
| Ownership | The FSA is typically owned by the employer, and employees access the funds as needed for qualified medical expenses. | The HSA is owned by the individual, and they have control over contributions, investments, and withdrawals. |
| Portability | Generally, FSAs are not portable, meaning that if you change employers, you cannot take your FSA with you. | HSAs are portable, and you can keep and use the account even if you change jobs or insurance plans. |
| Investment Options | FSAs do not typically offer investment options, and funds are held in cash. | HSAs often provide investment opportunities, allowing account holders to invest in stocks, bonds, mutual funds, and other options. |
| Use for Non-Medical Expenses | Generally, FSAs are intended for qualified medical expenses only. Non-qualified withdrawals are subject to income tax and penalties. | HSAs can be used for non-medical expenses without penalties after age 65, although income tax is still applicable. |