What Is The Primary Difference Between A Flexible Spending Account And A Health Savings Account?

A flexible spending account (FSA) and a health savings account (HSA) are both tax-advantaged accounts that can be used to pay for healthcare expenses. However, there are some key differences between the two accounts.

Eligibility

One of the biggest differences between an FSA and an HSA is eligibility. FSAs are offered through employers, while HSAs are available to people who have a high-deductible health plan (HDHP).

Contribution limits

Another difference between FSAs and HSAs is contribution limits. For 2023, the contribution limit for an FSA is $3,050, while the contribution limit for an HSA is $3,850 for individuals and $7,750 for families.

Tax advantages

Both FSAs and HSAs offer tax advantages. Contributions to both accounts are made on a pre-tax basis, which reduces your taxable income. However, there is one key difference in the tax treatment of FSAs and HSAs. With an FSA, you must use the money in the account by the end of the year, or you will lose it. This is known as the "use-it-or-lose-it" rule. With an HSA, there is no "use-it-or-lose-it" rule. The money in your HSA can be carried over from year to year.

Other differences

In addition to the differences mentioned above, there are a few other differences between FSAs and HSAs. For example, FSAs are typically offered with a debit card, while HSAs are not. This means that you can use your FSA debit card to pay for eligible expenses directly from your account. With an HSA, you will typically need to pay for expenses out of pocket and then submit a claim for reimbursement.

Which account is right for you?

The best account for you will depend on your individual circumstances. If you have a HDHP, an HSA may be a good option for you. If you do not have a HDHP, an FSA may be a better choice.

Here is a table summarizing the key differences between FSAs and HSAs:

Feature	FSA	HSA
Eligibility	Offered through employers	Must have a HDHP
Contribution limits	$3,050 (2023)	$3,850 for individuals, $7,750 for families (2023)
Tax advantages	Pre-tax contributions, but "use-it-or-lose-it" rule applies	Pre-tax contributions, no "use-it-or-lose-it" rule
Debit card	Typically offered	Not typically offered

I hope this article has helped you to understand the primary difference between a flexible spending account and a health savings account.

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