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Comparing HSAs and FSAs: Which is Right for You?

While both HSAs and FSAs are pre-tax healthcare savings accounts, they have some essential differences that set them apart. In this article, we will cover the distinctions between HSAs and FSAs so that you can determine which one is best for you.

What Is a Flexible Spending Account (FSA)?

Employers establish flexible spending accounts and offer them to employees as a benefit. Therefore, you cannot establish an FSA if your job does not offer it.

To use an FSA, you’ll enroll at work and instruct your employer to deduct money from your paycheck and move it into your FSA. When this money is moved into the account, it will not be counted as part of your gross income; therefore, taxes are not deducted from it.

There is a limit on how much you can put in an FSA. In 2022, the IRS raised the maximum contribution limits to $2,850 per individual. That means you have this amount available for qualifying medical expenses and some dependent care expenses.

If you do not use all of that in the year, you can carry over $570 from one year to the next. Any unused funds over that amount are lost.

How Does an FSA Work?

FSAs are pre-funded, which means if you sign up for the total $2,850 annual contribution, you have that available from the beginning of the year, even though you pay incrementally. When you have a medical expense not covered by your insurance, you typically have to pay for it out of pocket.

If you have an FSA, you can use those funds to pay your out-of-pocket costs. The benefit is this money is not taxed, so you get the total amount, and this amount lowers your income for the year, so your income taxes are reduced.

In theory, the IRS permits the use of FSA funds to cover “diagnosis, cure, mitigation, treatment, or prevention of disease, and for the purpose of affecting any part or function of the body.” In practice, this amounts to most expenses, outside of premiums, that one includes on their tax return. Some of the items and treatments you can pay for with an FSA include:

  • Abortion
  • Acupuncture
  • Ambulance Rides
  • Annual Physical Examinations
  • Artificial Limbs
  • Artificial Teeth
  • Bandages
  • Birth Control Pills
  • Body Scans
  • Braille Books and Magazines
  • Breast Pumps and Supplies
  • Breast Reconstruction Surgery
  • Improvements to property rented by a person with a disability
  • Car Modifications
  • Chiropractors
  • Contact Lenses
  • Crutches
  • Dental Treatments
  • Diagnostic Devices
  • Disabled Dependent Care Expenses
  • Drug Addiction
  • Drugs
  • Eye Exam
  • Eyeglasses
  • Eye Surgery
  • Fertility Enhancement
  • Guide Dog or Other Service Animal
  • Hearing Aids
  • Home Improvements

The list of available uses is extensive, so consider reviewing the complete list here.

Advantages of an FSA

An FSA can be an effective savings tool and a way to maximize your income. These are some of its benefits:

  • Your contributions are on a pre-tax basis, limiting your tax liability.
  • Pre-funding lets you use your total amount early in the year and can be applied toward your deductible.
  • You can use your FSA funds for dependent healthcare, too.
  • Prescribed over-the-counter medications are reimbursable.
  • Dental expenses are qualified medical expenses.
  • You can use your FSA money to pay for qualifying expenses for you, your spouse, and your dependents.

Disadvantages of an FSA

While there are some advantages to an FSA, there are also disadvantages, and some might cause you to reconsider enrolling:

  • The annual contribution max on an FSA is lower than that on an HSA.
  • Not all plans have a carryover option, so it’s a “use it or lose it” situation.
  • If there is a carryover, it only lasts for two and a half months into the next year and is limited to $570.
  • You can only use the money in your FSA on approved expenses.
  • You cannot invest your FSA money.
  • An FSA is tied to your job; if you lose or leave that job, you lose your benefits and any money you’ve paid into your FSA.
  • Contributions are determined at the beginning of the year and cannot change unless there is a family status change.

What Is a Health Savings Account (HSA)?

A health savings account, or HSA, also uses pre-tax contributions to pay for medical expenses. While an FSA is only available as an employer-provided benefit, an HSA is not. This means that HSAs are available to people from their employers and are also an option for self-employed people.

To qualify for an HSA, you must have a high-deductible health plan (HDHP) as your only health insurance. In 2022, an HDHP was defined as any health plan with a deductible of $1,400 or more for an individual and $2,800 or more for a family.

How Does an HSA Work?

If your health insurance qualifies as HSA-eligible, you can start an HSA through a work-offered plan or with a private insurance company. Much like an FSA, the money contributed to the HSA is pre-tax, so you can use the total amount you earn to reduce your tax bill.

The maximum annual contribution you could make to an HSA in 2022 was $3,650; for a family, you can contribute up to $7,300. You do not have to put that total amount into your HSA, especially if you feel you will not use it; unlike an FSA, HSA plans roll over from year to year and can be invested so the funds can grow. This can be an excellent way to save for future medical expenses.

Another benefit of HSAs is that the range of covered services is identical to FSAs, so we recommend reviewing the full list here.

Advantages of an HSA

HSAs have some benefits that can make it a smart financial move:

  • Your contributions are pre-tax, which gives you access to the total amount and reduces your tax bill.
  • You do not lose unused money at the end of the year; it rolls over for future use.
  • You can invest the money in your HSAs to earn additional funds.
  • Interest and other earnings you receive in your HSA are tax-free.
  • After you reach age 65, you can withdraw that money for any purpose without a penalty – meaning it does not have to go to a qualifying medical expense at that point.
  • You can decide what amount to put into your HSA each year if it does not exceed the IRS maximum contribution.
  • Contributions can come from employers, relatives, or anyone else.
  • You can use HSA funds to pay eligible health, dental, and vision expenses for you, your spouse, and your dependents.

Disadvantages of an HSA

HSAs also have some significant drawbacks:

  • HSAs are only available to people with qualifying HDHP insurance plans.
  • You can only access your HSA funds after they’re deposited into the fund; the account is not pre-funded.
  • If you withdraw funds for a non-qualifying expense before you turn 65, you must pay taxes and a 20% penalty.
  • Some HSAs have monthly maintenance fees or per-transaction fees.

Critical Differences Between FSAs and HSAs

Flexible Spending Account (FSA)
Health Savings Account (HSA)
Eligibility Requirements
If an employer offers an FSA, then all employees are eligible.
Must have a qualifying HDHP.
Unused Funds
Most unused funds are lost at the end of the year if unused. Some plans roll up to $570 for 2 ½ months into the following year.
Unused money rolls over yearly and is never lost.
Annual Contribution Limits and Adjustments
$2,850 per individual
$3,650 per individual$7,300 per family
Your contributions are tax-free, and distributions are also tax-free.
Contributions are tax-free. Distributions are tax-free but must be reported to the IRS.
Qualified Expenses
Determined by IRS Publication 502
Determined by IRS Publication 502

Eligibility Requirements


FSAs are a benefit that some employers offer. If your employer does not provide it or you’re self-employed, you will not qualify for an FSA. It is available to all employees without further qualifications if your employer offers this benefit.


An employer can offer an HSA or a self-funded account and not tied to your work. To qualify for an HSA, your health insurance plan must meet HDHP qualifications. The IRS establishes HDHP qualifications.

Unused Funds


At the end of the year, if you still have money in your FSA, you’ll likely lose it. Some FSAs have a grace period of two and a half months, but you can only roll over $570 into that grace period. If you have more than $570 left in your account, you’ll lose that amount. Also, if you do not use money rolled over within the grace period, you’ll lose it.


Unused funds in an HSA rollover and continue to be available to you. This is one of the significant benefits of an HSA. Even when you no longer have a qualifying HDHP, those funds are still in an account for you to use.

Annual Contribution Limits and Adjustments


The IRS makes adjustments to the annual contribution amounts once in a while. The current maximum contribution is $2,850 per individual. If your spouse has an FSA, they can also put that amount into an FSA. There is no maximum family amount that an individual can set aside.


HSAs are also changed to keep up with increases in medical expenses. The current established maximum annual contribution, defined by the IRS, is $3,650 for an individual. HSAs allow for a family contribution to be made by one person, and the maximum family amount is $7,300.



Your contributions to an FSA are pre-tax contributions, which means they come directly from your pay before taxes are taken out. This gives you access to the total amount and lowers your income, which reduces the amount you owe in income taxes.


HSA contributions are pre-tax, which happens before income taxes are determined. Distributions from an HSA must be reported on Form 8889 when paying year-end taxes. These distributions are not taxed but still must be reported.

Qualified Expenses


Qualifying medical expenses include the items listed in IRS Publication 502. This includes co-pays and deductibles, qualifying prescriptions, medical equipment, vision, and dental expenses, and some dependent care costs.


HSAs have the same qualifying expenses rules as FSAs, and IRS Publication 502 is the best resource to determine those expenses.

Can You Have Both an FSA and an HSA?

In most cases, you cannot have both an FSA and an HSA. If you qualify for an HSA, you generally will not qualify for an FSA unless it’s a limited purpose FSA (LPFSA) or a Dependent Care Assistance Plan FSA (DCAP).

An LPFSA offers coverage for a handful of eligible expenses that are covered, such as out-of-pocket dental and vision products, services, and procedures. These are the only covered expenses with these plans. Maximum contributions to an LPFSA are the same as a regular FSA.

The DCAP plan can pay for care for dependents under 13. It can also pay for dependents or any age who cannot look after themselves when you’re at work or school. The maximum contribution limit for a DCAP is $5,000 per year.

You cannot claim expenses on an HSA and an LPFSA, or a DCAP. This is called double-dipping, and it’s illegal. Having both an HSA and an FSA is very rare.

Should You Choose an FSA or HSA?

Both an HSA and an FSA offer you an option for maximizing your finances to pay medical expenses. Sometimes, you will not have a choice on which to pick. For example, you’re out of luck if your employer does not offer an FSA. Also, if your insurance does not qualify as an HDHP, you cannot take out an HSA.

That said, if you’re in a situation where you can choose your insurance, you might be able to select an HDHP plan and then opt for an HSA. This can be a good decision for a young and healthy person. Chances are they will not have many medical expenses in the year, so a high deductible insurance policy with low monthly premiums makes sense. An accompanying HSA also makes sense because it allows you to save for future medical expenses.

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