
FSA vs. HSA: Health Savings Account vs. Flexible Spending Account
FSA vs. HSA
A Health Savings Account (HSA) or a Flexible Spending Account (FSA). Which one should you choose? With several key differences between them, it literally pays to get this decision right.
When choosing between a Flexible Spending Account (FSA) and a Health Savings Account (HSA), it’s important to understand their differences. Both accounts help you save money for medical expenses, but they serve different purposes. Your decision depends on your healthcare needs and financial goals.
An FSA is set up by your employer, allowing you to save money through pre-tax payroll deductions. You can use these funds for deductibles, copays, and other out-of-pocket healthcare costs. However, the “use it or lose it” rule means that any unused funds at the end of the year are forfeited. Some employers may offer a grace period or let you carry over a small amount. FSA funds are available right away, even if you haven’t fully contributed yet.
An HSA, on the other hand, is linked to a high-deductible health plan (HDHP) and can be established by either your employer or you. The main advantage of an HSA is that unused funds roll over year after year, allowing you to build savings over time. You can also invest the money, and it grows tax-deferred. Withdrawals for medical expenses are tax-free, and after age 65, you can use the funds for any purpose without penalty, although they will be taxed if not used for healthcare.
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