| Aspect | Flexible Spending Account (FSA) | Health Savings Account (HSA) |
|---|---|---|
| Tax Advantages | Contributions are made with pre-tax dollars, reducing taxable income. | Contributions are made with pre-tax dollars, reducing taxable income. Contributions may also be tax-deductible. |
| Ownership of Account | Typically owned by the employer, although employees contribute to it. | Owned by the individual, and it remains with the individual even if they change employers. |
| Portability | Generally not portable; funds are lost if not used by the end of the plan year (with some exceptions). | Portable; funds roll over from year to year and can be carried to a new employer or used in retirement. |
| Account Contribution Limits | Subject to annual contribution limits set by the IRS. | Subject to annual contribution limits set by the IRS, often higher than those for FSAs. Contributions include both employer and employee contributions. |
| Withdrawals for Qualified Medical Expenses | Tax-free withdrawals for eligible medical expenses. | Tax-free withdrawals for qualified medical expenses. Funds can also be used for non-medical expenses, but may be subject to taxes and penalties. |
| Eligibility Requirements | Available to employees, but employers may choose whether to offer it. | Available to individuals covered by a high-deductible health plan (HDHP). Both employers and individuals can contribute. |
| HDHP Requirement | Not required; can be used in conjunction with any health insurance plan. | Requires enrollment in a high-deductible health plan (HDHP) as a prerequisite for eligibility. |
| Unused Funds at Year-End | Typically subject to the "use it or lose it" rule, with a limited grace period or carryover allowance. | Funds can roll over from year to year, with no "use it or lose it" rule. |
| Investment Options | Limited investment options; usually held in interest-bearing accounts. | Can be invested in a variety of options, such as mutual funds or stocks, allowing for potential growth over time. |
| Retirement Savings | Not designed as a long-term savings vehicle. | Can serve as a long-term savings vehicle for healthcare expenses in retirement. |
Both FSAs and HSAs provide tax advantages for healthcare expenses, but they differ in terms of ownership, portability, contribution limits, and eligibility requirements. Understanding these differences is crucial when deciding which account aligns better with individual or family healthcare needs and financial goals.