HSA and FSA are separate accounts with different rules, even though both let you set aside pre-tax money for medical costs

An HSA (Health Savings Account) and an FSA (Flexible Spending Account) both reduce your taxable income when you contribute to them, but they are not the same thing. The main difference: an HSA is yours to keep and grow over time, while an FSA is a use-it-or-lose-it account tied to your job. You can only open an HSA if you have a high-deductible health plan; an FSA works with any health insurance. Money in an HSA rolls over year to year and earns interest. Money in an FSA typically disappears at the end of the year if you do not spend it.

Both accounts pay for the same things — copays, deductibles, prescriptions, dental work, vision care, and other may have access to medical expenses. The choice between them depends on whether you want to save long-term or spend down each year, and what kind of health plan your employer offers.

Key Takeaways

  • An HSA requires a high-deductible health plan and lets you roll unused money forward indefinitely, while an FSA works with any plan and usually forfeits unspent money at year-end.
  • Both accounts use pre-tax dollars, so contributing to either one lowers your taxable income and your tax bill.
  • An HSA can be invested in stocks and bonds to grow over time; an FSA is typically held in cash and earns little to no interest.
  • You can contribute to an HSA on your own or through your employer; an FSA is only available through your employer.
  • Both accounts cover the same medical expenses, but the rules about what happens to leftover money are completely different.

Who can open each account

To open an HSA, you must be enrolled in a high-deductible health plan (HDHP). Your employer may offer one, or you can buy one on your own through the health insurance marketplace. You do not have to work for a company to have an HSA — self-employed people and those with individual plans can open one. You can also open an HSA at a bank or investment firm independently, even if your employer does not sponsor one.

An FSA is only available through your employer's benefits plan. You cannot open one on your own. If your employer does not offer an FSA, you cannot have one. Some employers offer both an HSA and an FSA; others offer one or the other.

How much you can contribute each year

HSA contribution limits are set by the IRS and change annually. For 2024, you can contribute up to $4,150 if you have individual coverage or $8,300 if you have family coverage. If you are 55 or older, you can add an extra $1,000 catch-up contribution. These limits reset each January.

FSA contribution limits are also set by the IRS and also change each year. For 2024, the limit is $3,200 per person per year. Unlike an HSA, you cannot make catch-up contributions to an FSA based on age. The limit applies to the calendar year, and you must decide how much to contribute during your employer's open enrollment period.

What happens to money you do not spend

This is the biggest practical difference between the two accounts. HSA money is yours permanently. If you contribute $3,000 and spend $500 on medical costs, the remaining $2,500 stays in your account. It rolls over to the next year, and the year after that, indefinitely. You can let it grow and invest it. If you change jobs, you take your HSA with you. If you retire, the money is still there.

FSA money operates under a "use-it-or-lose-it" rule. Money you do not spend by the end of the calendar year is forfeited and goes back to your employer. There is a small grace period — some employers allow you to spend FSA money through March 15 of the following year for expenses incurred in the prior year — but the money does not roll over. This means you have to estimate carefully how much medical spending you will have in the coming year.

Investment options and growth potential

An HSA can be invested. Many HSA providers let you invest your balance in mutual funds, stocks, bonds, or other securities, similar to a retirement account. This means your money can grow over time through investment returns. Some people use an HSA as a long-term savings vehicle for retirement medical expenses, letting the balance compound for decades.

An FSA is typically held in cash and earns little to no interest. It is designed as a spending account, not an investment account. Your money sits in the account until you use it for a may have access to expense.

Tax treatment and how much you save

Both accounts reduce your taxable income dollar-for-dollar. If you contribute $2,500 to an HSA or FSA, your taxable income drops by $2,500. This means you pay less federal income tax, and in most states, less state income tax. You also do not pay Social Security or Medicare tax on the money you contribute.

The tax savings depend on your tax bracket. If you are in the 22% federal tax bracket and contribute $3,200 to an FSA, you save roughly $704 in federal taxes alone. An HSA offers the same tax deduction, plus the added benefit that money can grow tax-free if invested.

Portability and what happens when you leave your job

An HSA belongs to you, not your employer. If you leave your job, you keep your HSA and all the money in it. You can take it to a new employer, roll it to a different HSA provider, or keep it where it is. There is no time limit — the account is yours for life.

An FSA is tied to your employer. When you leave your job, you lose access to the FSA. Any unspent money in the account is forfeited, even if you are leaving mid-year. Some employers allow you to continue FSA coverage through COBRA, but you would have to pay the full premium yourself, and the account would still end at the end of that plan year.

Frequently Asked Questions

Can I have both an HSA and an FSA at the same time?

In most cases, no. If you have an HSA, you cannot also have a general-purpose FSA. However, some employers offer a limited-purpose FSA that covers only dental and vision expenses, which you can pair with an HSA. Check with your employer's benefits administrator to see what combination, if any, is allowed.

What counts as a may have access to medical expense in both accounts?

Both accounts cover the same things: copays, coinsurance, deductibles, prescriptions, dental work, vision care, hearing aids, and many other medical costs. Over-the-counter medications now require a prescription to be covered. Neither account pays for cosmetic procedures, gym memberships, or general wellness products. The IRS publishes a full list of may have access to expenses.

What if I do not use all my FSA money by the end of the year?

You forfeit it. Some employers offer a grace period until March 15 to spend money on expenses from the prior year, but the funds do not roll over. This is why many people contribute conservatively to an FSA — it is better to leave money in your paycheck than to lose it.

Can I withdraw HSA money for non-medical expenses?

Yes, but you will pay income tax on the withdrawal plus a 20% penalty if you are under 65. After 65, you can withdraw money for any reason without the penalty, though you still pay income tax on non-medical withdrawals. This makes an HSA useful as a retirement savings tool.

Which account should I choose?

If your employer offers a high-deductible health plan and you want to save long-term, an HSA is usually the better choice because money rolls over and can be invested. If you have a traditional health plan and predictable annual medical expenses, an FSA lets you save on taxes for that year's spending. Some people use both if their employer allows it.