For some employees, the deadline for using the money in your flexible savings account (FSA) has passed. While some plans require that you use your funds by the end of the calendar year, some plans give you until March 15 of the following year to spend the money. So, for those with the March deadline, your chance to spend FSA dollars for the previous year – or lose them – has already passed. One of the reasons that employees leave an average $86 (according to Kiplinger) in their FSAs could be that they aren’t fully aware that this money doesn’t roll over like health savings account (HSA) contributions do.
Keep Your Funds: Biggest Difference Between a FSA and a HSA
Like the flexible spending account, a health savings account features tax-deductible contributions. You set aside pre-tax money for health care expenses, tapping your account when you need to spend money on qualified costs. As long as you use your money for qualified health care expenses, you don’t have to pay taxes on your contributions (and your earnings in the case of a HSA, which operates like an IRA).
Rules for what constitutes a qualified health care expense are similar for FSAs and HSAs, including the new rules that require you to have a prescription for over the counter medicines that you want to pay for using health account funds. There are some differences between the two accounts, though. The biggest difference between the FSA and the HSA is that you can roll your money over year to year with a HSA.
A flexible spending account requires that you use the money you set aside each year – or lose it. If you don’t spend it all, it is lost. With a health savings account, though, the story is different. The money rolls over, so it accumulates year after year. In the end, as long as you meet the rules for withdrawing from an IRA, you can even take distributions for non-medical costs (you will have to pay taxes, though).
Other Differences Between HSAs and FSAs
Qualifying for a HSA is a little different from qualifying for a FSA. You must be paying for a high deductible health insurance plan if you want to set money aside in a HSA. This means you might have higher out of pocket expenses – but a lower insurance premium. With the flexible spending account, it might just be part of your employer’s health plan. You don’t even need a health plan to participate in a FSA.
Additionally, with a FSA, you can actually use the money to pay for dependent care expenses, such as childcare or elder care. This is not possible with a HSA. In some ways, as long as you know that you can use the money in your FSA, the flexible spending account is more versatile than the health savings account. You should also be aware that if you have a chronic condition or spend a great deal on health care, a HSA might not be the best choice since you will be paying more out of pocket.
Choosing between the two is largely a matter of your personal finance situation, and your preference. Before deciding, though, you should understand the main differences between the two so that you know what will work best for you.
This post has been provided by DepositAccounts.com, a great place to find bank reviews and current rates for thousands of banks.
Tagged as: Money Management, Saving Money
You May Also Like:
- Don't Have an FSA? You'll Want One Now
- 7 Questions to Ask About HSAs and Other Ways to Pay…
- Is an HSA or FSA Better for Planned Medical Expenses…
- Are You Making These 3 Mistakes with Your HSA?
- Health Care Flexible Spending Account (FSA)
Money Saving Tip: An incredibly effective way to save more is to reduce your monthly Internet and TV costs.
Subscribe (and Get a Mini-Course Too!)
Subscribe to our newsletter to grab free amazing content and have it delivered to you. A 7-part mini course to help you spend less and be happy will be sent to you when you subscribe, and you will also get an ever-expanding How to Save Money on Everything ebook. Alternatively, stay engaged in our discussions via our twitter and facebook pages.
(Don't worry about spam, because we hate it as much as you do!)
FAQs
FSAs do not let you invest, which means whatever money you put in is the money you get. By contrast, you can invest your HSA and any potential growth accrues on a tax-free basis.
Is it better to have HSA or FSA? ›
If you meet the eligibility requirements, an HSA is typically a better choice for most, because you can contribute a higher amount and unused funds roll over to the following year.
Is a flexible savings account the same as a health savings account? ›
HSAs and FSAs both help you save for qualified medical expenses. HSAs may offer higher contribution limits and allow you to carry funds forward, but you're only eligible if you're enrolled in an HSA-eligible health plan. FSAs have lower contribution limits and generally you can't carry over funds.
Which is true of a health savings account but not a flexible savings account? ›
Final answer: A Health Savings Account, unlike a Flexible Spending Account, can only be opened if you have a health insurance plan with a high deductible. These HSAs also do not require you to spend money within a certain timeframe. Both types of accounts can be used for prescriptions and over-the-counter medications.
What is a key difference between a health reimbursem*nt account and a Flexible Spending Account? ›
FSAs are generally paired with traditional health plans. An HRA is an employer-owned and -employer-funded account designed to help members bridge the gap on eligible healthcare expenses. HRAs are highly customizable and a great way for organizations to offset rising costs.
What are the disadvantages of HSA? ›
The main downside of an HSA is that you must have a high-deductible health insurance plan to get one. A health insurance deductible is the amount of money you must pay out of pocket each year before your insurance plan benefits begin.
Is FSA worth having? ›
Let's make one thing clear: If you have an FSA available to you, and you're pretty sure you'll use it for either health care or dependent care, it's a good deal. Using tax-free income for those expenses is more cost-effective for the individual than using taxed income.
What are the disadvantages of flexible savings account? ›
While FSAs offer several benefits, they also have limitations. The 'use-it-or-lose-it' rule can lead to the loss of unspent funds.
Can you use FSA at Amazon? ›
Yes. Amazon does separate FSA and HSA eligible items and payment within a single order. If you have ineligible items in your cart or choose to have your eligible items gift-wrapped, you can choose to add another payment method and Amazon will charge the correct amount to each card or payment method.
What happens to unused FSA funds? ›
Unused FSA money returns to your employer. The funds can be used towards offsetting administrative costs incurred during the plan year, employers can also reduce salary reductions in the next FSA year, or funds must be equally distributed to employees who enroll in an FSA for the next year.
HSAs can help pay for a variety of dental services and orthodontic procedures. Here are some of the specific dental procedures your HSA can help cover: Crowns (when non-cosmetic, and may need a letter of medical necessity (LMN)) Sealants (if used for the prevention or treatment of a dental disease)
What happens to unused HSA funds? ›
Unlike many flexible spending accounts (FSAs) and health reimbursem*nt arrangements (HRAs), unused HSA funds automatically carry over to the following year. Even if your employer provided the account and made contributions, the account belongs to you — so any remaining funds are carried over every year.
Can I withdraw money from my FSA at an ATM? ›
Unfortunately, FSA cards cannot be used to withdraw FSA funds from an ATM. These cards can only be used on qualifying medical products and services.
Why would you choose an HRA over an HSA? ›
Unlike an HSA, HRAs are not accounts; they are an agreement between the employee and employer. Employers are allowed to claim a tax deduction for these reimbursem*nts. Plus, the money that employees get from their employers is typically tax-free as well.
Is a flexible spending account the same as an HSA for tax purposes? ›
Tax rules: While an FSA and HSA both allow you to make contributions with pre-tax dollars, an FSA is not the same as an HSA for tax purposes. The HSA contribution limits are different from the FSA limits. HSAs allow catch-up contributions for those 55 and older, but FSAs do not.
Can I withdraw money from my HRA account? ›
Can Employees Withdraw Money From an HRA Account? Given that HRA coverage is only funded by the employer, employees cannot withdraw HRA funds for purposes outside of the guardrails provided by the IRS. Unused contributions in HRA accounts are either rolled over to the following year or retained by the employer.
Is HSA always worth it? ›
Is an HSA worth it? An HSA is worth it if you expect to have any health expenses, ever, an HSA allows you to pay them with pretax dollars. Since almost everyone eventually faces health expenses, using an HSA to pay for them with pretax dollars can help your money go further.
Why is HSA better? ›
A health savings account (HSA) can help you lower your taxes, pay for health care more easily and even save for retirement. HSAs are only available with high-deductible health plans. You can use HSA funds to pay for eligible health care expenses and for out-of-pocket costs your health plan doesn't cover.
