A medical spending account is a tax-advantaged savings account that lets you set aside pre-tax money to pay for may have access to medical expenses

The most common type is a Flexible Spending Account (FSA), which is offered through your employer's benefits plan. You decide how much to contribute each year (up to a limit set by the IRS), that money comes out of your paycheck before taxes are calculated, and you use it to pay for doctor visits, prescriptions, dental work, and other medical costs. The money you don't spend on medical expenses by the end of the plan year is typically forfeited — you cannot roll it over to the next year or take it as a refund.

A Health Savings Account (HSA) works differently. It is also funded with pre-tax money, but you can carry unused funds forward indefinitely, invest them, and use them in retirement. An HSA is only available if you are enrolled in a high-deductible health plan (HDHP). Because HSAs offer more flexibility and the ability to save long-term, they are often a better choice if your employer offers both options.

Both accounts reduce your taxable income and let you stretch your healthcare dollars further. The catch is that you must use the money for may have access to medical expenses — if you withdraw it for anything else, you pay income tax on the withdrawal plus a penalty (though HSAs have a different penalty structure after age 65).

Key Takeaways

  • FSAs and HSAs both use pre-tax money, but FSAs require you to spend the money within the plan year or lose it, while HSAs let you save unused funds indefinitely.
  • You can only open an FSA through your employer's benefits plan, but you can open an HSA on your own if you have a high-deductible health plan.
  • may have access to expenses include copays, deductibles, prescriptions, dental and vision care, and many over-the-counter medical items — but not health insurance premiums (with rare exceptions).
  • Withdrawing money for non-medical expenses triggers income tax plus a penalty, so these accounts work best if you have predictable medical costs or are willing to save for future healthcare.

How FSAs and HSAs differ in structure and rules

An FSA is a "use-it-or-lose-it" account. You elect a contribution amount during your employer's open enrollment period, and that money is deducted from each paycheck throughout the plan year. At the end of the year, any balance you have not spent is forfeited. Some employers offer a grace period (usually 2.5 months into the next year) to spend remaining funds, and some allow a small carryover ($610 in 2024, though this amount changes annually), but most do not.

An HSA has no use-it-or-lose-it rule. Money you do not spend stays in the account and earns interest or can be invested. You can withdraw it whenever you need it, and there is no deadline. After age 65, you can withdraw HSA funds for any reason without penalty (though you will owe income tax on non-medical withdrawals). This makes an HSA function like a retirement account if you do not need the money for healthcare.

The trade-off is access. You can open an FSA only through your employer — you cannot set one up on your own. An HSA requires that you be enrolled in a high-deductible health plan (HDHP), which has lower premiums but higher out-of-pocket costs. If your employer does not offer an HDHP, you can open an HSA through a bank or insurance company on your own, but you must still be covered by an HDHP.

What counts as a may have access to medical expense

may have access to expenses are specific. They include copays and coinsurance, deductibles, prescription medications, dental and vision care, mental health treatment, physical therapy, and many over-the-counter items like pain relievers, allergy medicine, and first-aid supplies. You can also use the funds for medical equipment (crutches, wheelchairs, hearing aids) and certain preventive care.

What does not count: health insurance premiums (with narrow exceptions for COBRA, Medicare, and long-term care insurance), cosmetic procedures, gym memberships, and vitamins or supplements that are not medically prescribed. If you are unsure whether a specific expense qualifies, check the IRS Publication 502 or ask your account administrator before you spend the money.

One important detail: you can use FSA or HSA funds to pay for a family member's may have access to medical expenses, even if that person is not covered under your health plan. This is useful if you have adult children or a spouse on a separate plan.

How to use your account and track spending

Most FSAs and HSAs come with a debit card that you can use at pharmacies, doctor's offices, and other medical providers. When you swipe the card, the transaction is flagged as medical and the funds are deducted from your account. Some providers will ask you to submit a receipt to verify the expense is may have access to.

If you do not have a debit card, or if a provider does not accept it, you can pay out of pocket and then request reimbursement from your account administrator. You will need to submit a receipt and sometimes a form explaining what the expense was. Reimbursement typically takes one to two weeks.

Keep all receipts and documentation. If you are audited or if your account administrator questions a withdrawal, you will need proof that the expense was may have access to. Many people photograph receipts or save them in a folder specifically for this purpose.

Contribution limits and how much you can save

FSA contribution limits are set by the IRS and change each year. For 2024, the limit is $3,200 per year. Your employer may set a lower limit, but not a higher one. You choose your contribution amount during open enrollment, and it is locked in for the plan year — you cannot change it unless you have a may have access to life event (marriage, birth of a child, loss of health coverage).

HSA contribution limits are also set by the IRS and vary depending on whether you have individual or family coverage. For 2024, the limit is $4,150 for individual coverage and $8,300 for family coverage. Unlike an FSA, you can change your HSA contribution at any time, and unused funds roll over year after year.

The tax savings depend on your income and tax bracket. If you contribute $3,200 to an FSA and your combined federal and state tax rate is 25%, you save $800 in taxes. That is money you would have paid in taxes anyway, now available to spend on healthcare. The savings are real, but they only matter if you actually use the money for may have access to expenses.

Risks and common mistakes to avoid

The biggest risk with an FSA is overestimating how much you will spend. If you contribute $3,200 and only spend $2,000, you lose $1,200. This is especially risky if your medical needs are unpredictable or if you are new to an employer and do not yet know what your costs will be. A safer approach is to contribute only what you are confident you will spend, or to choose an employer that offers a grace period or carryover.

With an HSA, the risk is different: many people treat it like a regular savings account and forget it is meant for healthcare. If you withdraw money for non-medical reasons before age 65, you owe income tax plus a 20% penalty. After age 65, the penalty goes away, but you still owe income tax on non-medical withdrawals. This makes HSAs less flexible than they appear if you need the money for something other than healthcare.

Another common mistake is not keeping receipts. If you cannot document that an expense was may have access to, your account administrator may deny the reimbursement or ask you to repay it. This is especially true for over-the-counter items, which require a prescription or a letter from your doctor to may have access to.

How to decide between an FSA and an HSA

If your employer offers both, choose based on your situation. An FSA makes sense if you have predictable medical expenses (regular prescriptions, ongoing therapy, dental work) and you are confident you will spend the money. It also makes sense if you do not have a high-deductible health plan or if you prefer not to manage investments.

An HSA makes sense if you want to save for future healthcare costs, if your medical expenses vary year to year, or if you want the option to use the money in retirement. An HSA is also better if you are young and healthy and expect to have low medical costs — you can contribute the maximum and let it grow for decades.

If your employer only offers one option, the choice is made for you. If you have access to an HSA through an HDHP, it is usually worth opening one even if you do not use it immediately, because the long-term savings potential is significant.

Frequently Asked Questions

Can I use FSA or HSA money to pay for my spouse's medical expenses?

Yes. Both accounts allow you to pay for may have access to medical expenses of your spouse and dependents, regardless of whether they are covered under your health plan. You just need to keep receipts showing the expense was may have access to and who it was for.

What happens to my FSA balance if I leave my job?

You lose any unused balance. FSA funds are owned by your employer, not by you. If you leave mid-year, you forfeit the remaining balance. Some employers allow you to continue the FSA under COBRA, but you would have to pay the full premium yourself, which is usually not worth it for a spending account.

Can I use my HSA to pay for health insurance premiums?

Not usually. HSA funds cannot pay for your regular health insurance premiums. However, there are three exceptions: you can use HSA money to pay for COBRA continuation coverage, Medicare premiums (including Part B, Part D, and Medigap), and long-term care insurance premiums. You cannot use it for supplemental insurance or dental-only plans.

Do I have to spend my HSA money before I turn 65?

No. HSA funds never expire. You can keep the money in the account indefinitely and use it whenever you need it. After age 65, you can withdraw funds for any reason without the 20% penalty, though you will owe income tax on non-medical withdrawals.

What if I do not have any medical expenses — can I just keep the money?

With an HSA, yes. With an FSA, no — you forfeit unused funds at the end of the plan year. This is why FSAs are risky if your healthcare needs are unpredictable. HSAs are better for people who want to save money without pressure to spend it.