FSA and HSA are both tax-advantaged accounts for medical expenses, but they work in very different ways

A Flexible Spending Account (FSA) and a Health Savings Account (HSA) both let you set aside pre-tax money for medical costs. But they have different rules about who can open them, how much you can contribute, what happens to unused money, and how long you can keep the account open. Understanding which one you have — or which one you're may be able to access for — matters because the rules determine what you can actually do with the money.

The biggest practical difference: FSA money disappears if you don't spend it by the end of the year (with limited exceptions). HSA money rolls over forever and can grow like a retirement account. That single fact changes how you should think about each account.

Key Takeaways

  • FSAs are "use it or lose it" accounts where unspent money at year-end is forfeited, while HSA funds roll over indefinitely and can accumulate.
  • You can only open an FSA through your employer, but you can open an HSA on your own if you have a high-deductible health plan.
  • FSA contribution limits are set by your employer (usually $2,500 to $3,200 per year), while HSA limits are higher and set by federal law.
  • Both accounts use pre-tax money, so contributions reduce your taxable income and the money grows tax-free when spent on may have access to medical expenses.
  • HSAs can be invested in stocks and bonds, while FSAs typically hold cash and earn little to no interest.

How FSA contributions and spending work

An FSA is an employer-sponsored plan. You enroll during your company's open enrollment period, usually once a year. You choose how much to contribute for the coming year, and that money is deducted from your paycheck before taxes are calculated. Your employer may also contribute to your FSA, though they're not required to.

You spend FSA money by submitting receipts to your plan administrator or using a debit card linked to the account. The money must be used for may have access to medical expenses — copays, deductibles, prescriptions, dental work, vision care, and similar costs. Once you've spent the money, it's gone from the account. Any money left unspent at the end of the calendar year is forfeited to your employer. There is a grace period option (some plans allow you to spend money into the following March for expenses incurred in the prior year), but this is optional and not all employers offer it.

How HSA contributions and spending work

An HSA is available only if you're enrolled in a high-deductible health plan (HDHP). Unlike an FSA, you don't have to get an HSA through your employer — you can open one at a bank or investment firm on your own. You can contribute money yourself, your employer can contribute, or both of you can. Contributions are made with pre-tax dollars and reduce your taxable income.

HSA money doesn't expire. Whatever you don't spend in a given year stays in the account and can be spent in future years. You can also invest HSA funds in stocks, bonds, or mutual funds, which means the account can grow over time. Once you turn 65, you can withdraw HSA money for any reason (not just medical expenses), though non-medical withdrawals are taxed as income. If you use the money for may have access to medical expenses at any age, there's no tax.

Contribution limits and employer involvement

FSA contribution limits are set by your employer, not by federal law. Most employers cap FSA contributions between $2,500 and $3,200 per year, though the IRS allows up to $3,300 for 2024 (this amount changes yearly). Your employer decides the limit and communicates it during enrollment.

HSA contribution limits are set by federal law and are higher. For 2024, individuals can contribute up to $4,150 per year, and families can contribute up to $8,300. These limits increase slightly each year. You can contribute to an HSA whether or not your employer offers one, and you can contribute even if your employer also contributes.

What happens when you leave your job

When you leave your job, your FSA typically ends. You may have a short window (usually 60 to 90 days) to submit claims for expenses you incurred while enrolled, but you cannot continue the account or access any remaining balance. Some employers offer COBRA continuation for FSAs, but this is rare and you would have to pay the full premium yourself.

An HSA is yours to keep. If you leave your job, the account stays open and the money remains available. You can continue to use it for medical expenses, invest it, or let it sit. If you change jobs and your new employer offers an HSA, you can keep your old HSA and open a new one, or consolidate them. The account is portable in a way an FSA never is.

Tax treatment and investment options

Both FSAs and HSAs use pre-tax contributions, meaning the money you put in reduces your taxable income for that year. Both accounts also allow money to grow tax-free as long as it's spent on may have access to medical expenses. The difference is in what you can do with the money while it sits in the account.

FSA funds are typically held in cash and earn little to no interest. HSA funds can be invested in a range of options — money market accounts, CDs, stocks, bonds, or mutual funds — depending on what your HSA provider offers. This means an HSA can function as a long-term savings vehicle, while an FSA is designed for near-term spending.

may have access to medical expenses in both accounts

Both FSAs and HSAs cover the same types of may have access to medical expenses: copays, coinsurance, deductibles, prescription medications, dental work, vision care, hearing aids, mental health treatment, and many other costs. The IRS publishes a detailed list of what counts. Over-the-counter medications now count if you have a prescription, but vitamins and general wellness products typically do not.

One important note: you cannot use FSA or HSA money to pay premiums for your health insurance itself (with narrow exceptions for COBRA, long-term care insurance, or health insurance while unemployed). The money is for out-of-pocket medical costs, not insurance premiums.

Which account makes sense for your situation

If your employer offers an FSA and you have predictable medical expenses each year — regular prescriptions, ongoing therapy, dental work you know is coming — an FSA can reduce your taxes immediately. The downside is that you have to estimate accurately. If you overestimate and don't spend the money, you lose it.

If you have a high-deductible health plan and can afford to set aside money for medical expenses, an HSA is usually the better choice. You get the same tax break as an FSA, but the money rolls over, can be invested, and gives you flexibility. Even if you don't use the money for medical expenses in the near term, you can let it grow and use it later in life. Many people treat an HSA as a retirement account specifically for medical costs.

If you have both available — your employer offers an FSA and you're enrolled in an HDHP with access to an HSA — you can use both. Contribute to the HSA first (it's more flexible), then use the FSA for expenses you know are coming.

Frequently Asked Questions

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

Yes, but only if your FSA is a limited-purpose FSA (covering only dental and vision) or a post-deductible FSA (covering expenses after you've met your deductible). A general-purpose FSA and an HSA cannot be held simultaneously because the IRS considers them duplicative. Check with your employer about which type of FSA they offer.

What happens to my FSA money if I don't spend it by the end of the year?

It's forfeited to your employer. Some plans offer a grace period allowing you to incur expenses through March 15 of the following year for the prior year's funds, but this is optional. If your plan doesn't offer a grace period, any unspent balance is lost. This is why it's important to estimate conservatively.

Can I withdraw HSA money for non-medical reasons?

Yes, but only after age 65. Before 65, non-medical withdrawals are subject to income tax plus a 20% penalty. After 65, you can withdraw for any reason and only owe income tax (no penalty). If you use the money for may have access to medical expenses at any age, there's no tax or penalty.

Do I have to use my FSA or HSA debit card, or can I pay out of pocket and reimburse myself?

Either way works. You can use the debit card directly, or you can pay for medical expenses yourself and submit receipts for reimbursement. Some people prefer to pay out of pocket and let the HSA grow, then reimburse themselves years later. This strategy only works with an HSA, not an FSA, because FSA money expires.

Can my employer change or cancel my FSA mid-year?

Employers can make changes to FSA plans, but they cannot simply cancel your FSA mid-year without a may have access to event (like a merger or significant financial hardship). If your employer does cancel the plan, you typically have the right to spend down your remaining balance through the end of the year or receive it back. Check your plan documents or ask your HR department about the specific rules.