| Aspect | Health Savings Account (HSA) | Flexible Spending Account (FSA) |
|---|---|---|
| Purpose | Designed to help individuals save for qualified medical expenses. | Intended to provide employees with a tax-advantaged way to pay for eligible medical expenses. |
| Ownership | Owned by the individual, and the account is portable, moving with the individual even if they change jobs. | Typically owned by the employer, and ownership may not be portable if the individual changes jobs. |
| Eligibility | Requires enrollment in a high-deductible health plan (HDHP) to contribute. | Available to employees regardless of the type of health insurance plan they have. |
| Contribution Limits | Contributions are subject to annual limits set by the IRS. Individual: $3,650; Family: $7,300 (2022), with an additional $1,000 catch-up contribution for individuals 55 and older. | Contributions are subject to annual limits set by the IRS. For 2022, the limit is $2,850. |
| Rollover of Funds | Funds roll over from year to year and are not forfeited at the end of the plan year. | Employers may offer a carryover of up to $500 or a grace period of 2.5 months after the plan year ends. Any unused funds beyond these options may be forfeited. |
| Withdrawals for Non-Medical Expenses | If withdrawn for non-medical expenses before age 65, the withdrawal is subject to income tax and a 20% penalty. After age 65, withdrawals for non-medical expenses are subject to income tax but not the penalty. | If withdrawn for non-medical expenses, the entire amount is subject to income tax and a 20% penalty, regardless of age. |
| Investment Options | Many HSAs offer investment options, allowing individuals to invest a portion of their HSA funds in various instruments. | Generally does not offer investment options. Funds are usually held in a non-interest-bearing account. |
| Access to Funds | Account holders can access funds for qualified medical expenses at any time. | Funds are accessible as soon as they are contributed, even if the full annual contribution amount has not been deposited. |
| Portability After Leaving Employer | Portable, and individuals can keep and use the HSA even if they change jobs or retire. | Portability depends on employer policies. Some employers allow a grace period or a carryover, while others may have a "use it or lose it" policy. |
| Employer Contributions | Employers, individuals, or both may contribute. Employer contributions count toward the annual contribution limit. | Employers may contribute, and contributions do not count toward the individual's annual contribution limit. |
| Tax Treatment | Contributions are tax-deductible, and qualified withdrawals are tax-free. | Contributions are tax-deductible, and qualified withdrawals are tax-free for eligible medical expenses. |
| Use in Retirement | Can be used as a supplemental retirement savings vehicle. After age 65, withdrawals for non-medical expenses are subject to income tax but not the penalty. | Generally not used for retirement savings. Unused funds may be forfeited or subject to employer-specific rules. |
In summary, both Health Savings Accounts (HSAs) and Flexible Spending Accounts (FSAs) offer tax advantages for qualified medical expenses, but they differ in terms of ownership, eligibility, contribution limits, rollover rules, investment options, and portability. HSAs are typically owned by individuals, require enrollment in an HDHP, and offer greater flexibility and portability. FSAs are often owned by employers, have lower contribution limits, and may have more restrictive rollover options.