Many employers offer a choice between a Health Savings Account (HSA) and a Flexible Spending Account (FSA), but what’s the difference?
Since you typically cannot use both, here are three differentiators to consider:
|Flexible Spending Account||Health Savings Account|
|Annual Contribution Limits||Up to $2,650 individual
Up to $5,300 per household
|Up to $3,450 individual*
Up to $6,900 per household
|Ownership||Owned by employer and lost with job change, unless eligible for continuation through COBRA||Owned by individual and carries over with employment changes|
|Rollover Rules||Employer chooses whether:
Funds expire at the end of the year
Employees get a grace period of 2.5 months to use funds
Employees can roll over $500 into next year’s FSA
|Unused funds roll over every year|
* If you are age 55 or older, you can make “catch up” contributions, which add $1,000 per year to your HSA contribution limit.
Additionally, both accounts offer tax benefits. That is, contributions are pretax amounts that directly reduce your taxable income.
Although, the ability to roll unused funds to subsequent years is specific to the HSA account. This presents an opportunity to invest contributions for potential growth, to hedge the rising costs of health care expenses.
Per usual, this decision should be considered within your overall financial plan. If you’d like to discuss which might be better for you, we are happy to start the conversation.