This is something that you will have to speak with your employer about as eligibility will vary on a case-by-case basis. Health Savings vs. Employee can change the contribution amount anytime throughout the year. Vision care costs (i.e. The money contributed to an HSA account is made with pre-tax dollars and, therefore, reduces the amount of income reported for tax purposes. They are meant to be a savings account. If you establish an FSA, just keep an eye on the account to make sure you don't let any accrued money expire at the end of the year. The biggest difference between the two is the fact that not everyone qualifies for an HSA. Bankrate.com is an independent, advertising-supported publisher and comparison service. Bankrate’s editorial team writes on behalf of YOU – the reader. The type of account … Use the chart to learn the differences between a health savings account (HSA) and a health care flexible spending account (FSA) to get the most out of your health plan. We continually strive to provide consumers with the expert advice and tools needed to succeed throughout life’s financial journey. If you can't afford both, it would be better to put those funds towards health insurance. “Unlike the FSA, where you must exhaust your contributions annually, the HSA money can be invested to grow and compound. There are two ways these contributions can benefit the employees. You'll never guess what the clear favorite is. To help you make an informed decision, we’re taking a look at the benefits and differences between Flexible Spending Accounts (FSA) and Health Savings Accounts (HSA). The HDHP must be your only health care plan. And are both used to pay for qualified, out-of-pocket medical expenses. Our goal is to give you the best advice to help you make smart personal finance decisions. Under the Section 125 plan a.k.a the cafeteria plan, employees are offered benefits to utilize that can be either pre-tax or excluded from their gross income. With open enrollment just around the corner, it’s time to start thinking about what health benefits you’re going to enroll in for the upcoming year. A lot of people hear HSA and think FSA (Flexible Spending Account). The tax benefits can be substantial. The offers that appear on this site are from companies that compensate us. Health Reimbursement Account (HRA) – is an IRS-approved, employer-funded, tax-advantaged health benefit used to reimburse employees for out-of-pocket medical expenses and personal health … Why should I care about an FSA or HSA at all? An FSA is similar to an HSA, but there are a few key differences. One of the key things to consider is the rollover rules for each type of account — FSA funds are on a use it or lose it basis, whereas funds in HSAs can rollover into the next year. As long as you use the funds to pay for qualified medical expenses, you probably won't owe taxes on withdrawals. Self-employed people who have high deductible plans also can set up HSA accounts. HSAs and FSAs, while structurally similar, are intended for different purposes and must be used accordingly. Here’s a broad look at some popular expenses that typically qualify: Additionally, HSA funds can be used towards post-tax insurance premiums such as COBRA and other long-term care premiums. If you have an HMO or PPO at work with a low-deductible, … FSA Flexible Spending Account Be a savvy saver An HSA is a member-owned account that enjoys a triple-tax advantage.2 You can make pre-tax payroll contributions, grow tax-free earnings, and enjoy tax-free distribution to pay for qualified medical expenses. The two types of accounts most often offered to employees are the Health Savings Account (HSA) and the Flexible Spending Account (FSA). By contributing to these tax-advantaged accounts, you could lower your income taxes while also having funds available for important health expenses. FSA funds have an annual expiration date, but HSAs’ benefits grow with you over time. When you need the funds, you’re able to easily withdraw them, but if you’re lucky and don’t use them all up by age 65, then you can withdraw the money penalty-free and use it towards anything and only pay income tax — making it a nice bonus to your retirement savings strategy, says Friedberg. A Health Savings Account (HSA) is an account for individuals with high-deductible health plans to save for medical expenses that those plans do not cover. However, HSA funds can be, but the money will be taxable and subject to a 20% penalty for employees under 65 (those over 65 will still have to pay income tax on distributions for non-medical expenses). A refresher on what FSA and HSA are and how you can use either: FSA stands for flexible spending account , and HSA stands for health savings account . HSA vs. FSA: What’s the difference? Healthcare can be costly even for the heartiest among us. 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