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HSA or FSA: Which Is Right for You?

Everyone knows that healthcare takes up a huge amount of their budget. Along with sharply rising prices have come many changes in how individuals are asked to allocate their healthcare dollars. This includes choosing benefits during open enrollment and sometimes deciding between an FSA and HSA. Understanding the difference between the two is important in deciding which is best for you. Below we have created a guide to help you understand the differences between the two and help you make an educated decision on which is better for you. 

What is a Health Savings Account? 

A Health Savings Account (HSA) is offered by employers with a high deductible health plan. Those who are self-employed and have high-deductible plans can also set up HSA accounts. The employer or self-employed individual will deposit all or a portion of the deductible into an HSA to cover costs until the deductible is met. Once this occurs the health insurance policy will take over the financial burden for the individual. When the account is set up you can then add additional money to your HSA via a payroll deduction. The money that you contribute to your HSA is made with pretax dollars which reduces the amount of income you report for tax purposes. Any interest or earnings in the money in your account is also tax-free.  

What is a Flexible Savings Account?  

A Flexible Savings Account (FSA) is like an HSA except for a few key differences. One major difference is that self-employed individuals are not eligible for an FSA. Additionally, FSA accounts have one huge benefit: it can be set up as a Dependent Care FSA (DCFSA) which allows for childcare expenses. There is also the possibility of having a separate FSA to cover medical expenses depending on your company’s plan. Like an HSA, you can contribute to an FSA with pretax dollars, which reduces your income for tax reporting purposes. Additionally, if the funds are used to pay for qualified medical expenses, you most likely won’t owe taxes on withdrawals.  

Key Differences  

There are a few differences between HSA and FSA accounts highlighted in the table below. The two key differences are portability and rollover eligibility. First, the HSA is portable, meaning the account moves with the employee. Second, the account balance in the HSA can be rolled over from year to year whereas the FSA account balance must be used or lost each year. Finally, contribution limits are higher with an HSA vs. an FSA.   

HSA vs. FSA: 

This table obtained from Investopedia shows the major differences and similarities between both health accounts. 


Eligibility  Must have a qualified high-deductible health plan (HDHP). Self-employed can contribute.    All employees are eligible regardless of whether they have insurance or not.   Self-employed cannot contribute. 
2022 Contribution Limit  $3,650 Individual Coverage, $7,300 Family Coverage  $2,850 
Contribution Source  Employer and/or employee  Employer and/or employee 
Account Owner  Employee  Employer 
Rollover  Unused contributions can be rolled over to the next year.  Unused contribution is lost at end of the year. 
Withdrawals  Allowed, but includes tax withheld plus 10% penalty.  Not allowed. 
Interest Earned  Interest earned in the account is tax-free.  Account does not earn interest. 
Portability  The employee keeps account even if they change jobs.  The account is forfeited after a job change. 
Accessibility  Can only access what has been contributed to the account.  Complete access to the annual election amount, regardless of whether the account has been fully funded or not. 
Contribution Amendment  Employees can change contribution amount during the year.  The employee is stuck with the contribution amount chosen at the beginning of the year. 


Which is Better?  

Which health savings plan is best for you will depend on your specific situation. It is best to check with your healthcare provider, employer, or financial advisor before choosing either plan. Both provide tax benefits, so they are worthy of your consideration and investigation.