Health savings accounts (HSAs) and flexible spending accounts (FSAs) both allow you to set aside pre-tax dollars to spend on expenses. Both account types offer benefits and drawbacks. Understanding these can help you choose the best plan for you.

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Health savings accounts (HSAs) and flexible spending accounts (FSAs) are two different savings account choices that can be paired with health insurance plans.

Both plans allow you to set aside tax-free money for medical expenses and can help you save money. However, the plans aren’t the same.

There are significant differences in important details like the contribution limits, associated health insurance plans, and time frames for spending the funds. Knowing these details can help you determine which plan is right for you.

A health savings account (HSA) is a savings account linked to a high deductible health insurance plan. The money you put into your HSA is not subject to income tax.

You can use the money in an HSA to pay for everyday medical costs, such as over-the-counter (OTC) pain relievers, as well as for yearly expenses, such as vision exams.

There are several rules and regulations for HSAs that set them apart from other healthcare options. Key features of HSAs include:

  • They can only be used with high deductible health plans: A high deductible health plan is defined as a health plan with a minimum deductible of $1,500 for an individual or $3,000 for a family.
  • There are maximum contribution limits: An HSA is a savings account, but the IRS limits the amount of money you can put into it. In the 2023 tax year, the maximum allowed contribution is $3,850 for an individual or $7,750 for a family.
  • The money in your HSA can roll over from year to year: Your HSA funds can carry over from year to year. This means there’s no rush to use them during a set calendar year.
  • The money in your HSA account is not tied to an employer: Although many people start HSAs through an employer benefits package, an HSA account isn’t tied to an employer. Once you start an HSA, the account is yours and will travel with you.
  • You can spend only the money in your account: Some healthcare products let you spend ahead or borrow against the future value of an account. With an HSA, you can spend only the money that’s actually in your account at that time.
  • An HSA can be an investment account: Some HSAs are investment options and allow you to tie your HSA to stocks. Other HSAs earn interest. Either option can be a good way to grow your HSA account.

A flexible spending account (FSA) is a savings account attached to an employer-based health insurance plan. Funds are contributed to an FSA pre-tax — in other words, before your taxes are taken from your paycheck.

You can use the funds in your FSA to pay for healthcare services and items. FSAs have several key features that set them apart from other healthcare options.

These features include:

  • FSAs are only offered with employer plans: You cannot use an FSA with a public health insurance plan from the Health Insurance Marketplace or with a federal government plan such as Medicare.
  • There are maximum contribution limits: The IRS limits the amount of money you can contribute to your FSA each year. In 2023, an individual can contribute a maximum of $3,050 dollars. If you’re married, your spouse can also contribute $3,050 to a separate FSA with a separate employer.
  • FSA funds do not roll over: You generally need to use the money in your FSA in a calendar year. Some plans offer grace periods or small rollover cushions, but typically, you’ll need to use your money or risk losing it.
  • You can borrow against an FSA: An FSA offers you the opportunity to borrow against future contributions. For example, you could spend an entire year’s contributions in January if necessary. Your contributions will continue to come out of each paycheck.

For a quick look at the difference between HSAs and FSAs, check out the chart below.

tied to a high deductible health plantied to an employer health plan
money carries from year to yearmoney doesn’t roll over from year to year
belongs to you even if you leave your jobaccount lost if you leave your employer
maximum 2023 individual contribution of $3,850maximum 2023 individual contribution of $3,050
can double contribution if you have a familyspouse can have their own FSA with another $3,050
can change contribution amount at any time throughout the yearcan change contribution amount only during open enrollment
money in the account not subject to income taxmoney in the account not subject to income tax

An FSA can be a great choice for some families and some situations, but it’s not the best choice for everyone. It’s a good idea to understand the benefits and risks before you decide on any health account.

The benefits of an FSA include:

  • An FSA can provide savings: The money you contribute to an FSA isn’t subject to income taxes. This may add up to significant savings.
  • Your employer could double your money: Employers can contribute to your FSA. Not all employers offer this benefit, but if your employer does, it can make your FSA account very valuable. The IRS allows an employer to contribute up to double the amount of money an employee contributes.
  • You can use an FSA as a line of credit: Your FSA contribution is set each year during open enrollment and comes out of your paycheck during each pay period. This allows an FSA to act like a line of credit. You can use the full amount you plan to contribute for 2023 early in the year without risks, taxes, or penalties.

The risks of an FSA include:

  • FSAs stay with your employer: Your FSA account is linked to your employer. This means that if you leave your job for any reason, you’ll also leave behind your FSA account and any money that’s in it.
  • FSA funds don’t roll over: You need to use the money in your FSA account in a calendar year. If you don’t, your funds won’t roll over, and you’ll lose the money.

An HSA is another option for health savings, but like an FSA, it’s not the best choice for everyone. There are risks and benefits to an HSA. HSAs can be a great fit for some people, but it’s best to know the details before making a choice.

Benefits of an HSA include:

  • An HSA can provide savings: Just like an FSA, you won’t be charged income tax on the funds in your HSA. You can have HSA contributions taken out of a paycheck pre-tax, or you can choose to deduct your contributions from your income when you file taxes.
  • HSA funds can build up: HSA funds roll over from year to year. This means you can save up for big medical expenses such as surgeries.
  • HSAs have higher contribution limits: You can contribute more to an HSA than FSA, especially if you have a family.
  • An HSA is yours to keep: An HSA isn’t tied to a specific employer. You can keep your account if leave your job for any reason.

Risks of an HSA include:

  • HSAs are tied to high deductible plans: A high deductible plan can leave you with high medical bills.
  • You could be taxed if you spend money on a nonmedical expense: The money in your HSA isn’t subject to income tax, and you can use it for approved medical, dental, and vision expenses. However, if you spend the money on an expense that is not approved, you’ll be subject to a 20% tax.

The right plan for you is one that meets your healthcare needs and budget. There are positives and negatives to both HSAs and FSAs.

An HSA is a good option if:

  • You do not have many medical expenses: HSAs pair with high deductible health insurance plans. If you know you don’t have many standard medical expenses, this could be a smart choice for you.
  • You plan to move or switch jobs several times: An HSA will stay with you through moves and job changes. It’s your account, so you never have to worry about losing it.
  • You want to build up savings: If you’re saving for future healthcare expenses, an HSA can help. The money rolls over each year, so can use your HSA to plan and save.

An FSA is a good option if:

  • You, your spouse, or your dependents have medical expenses: If you or a family member see the doctor regularly, have standard prescriptions you take, or need any form of regular care, a high deductible health insurance plan likely isn’t a good option. You probably need a plan with a lower deductible and an FSA to go along with it.
  • Your employer matches contributions: If your employer matches contributions, an FSA could be very worthwhile.
  • Your employer offers a dependent care FSA: A dependent care FSA allows you to use FSA funds for day care, preschool, home healthcare, and more to help you cover the cost of caring for children under age 12 or dependent adults. If your employer offers this benefit, it can be very valuable.

You can learn more about FSAs and HSAs by reading answers to some common questions below.

How do you make withdrawals from an HSA or FSA?

Most HSAs and FSAs issue debit cards. You can use this card at doctor’s offices, drug stores, medical supply companies, and more. You can also purchase these items and file a claim for reimbursement from your HSA or FSA.

How can you tell what items are eligible for HSA or FSA funds?

Several basic items are always eligible. This includes:

For more specific items, you can often look online. The websites of drug stores and mega-retailers such as Amazon typically list whether an item is FSA/HSA eligible in the product description.

Do the maximum contribution limits change every year?

Yes. The maximum contributions for FSAs and HSAs change each year to adjust to inflation and the cost of living. The minimum deductible required for a health insurance plan to qualify as a high deductible health plan also changes each year.

FSAs and HSAs are both healthcare accounts that can help you save money on medical expenses. You can use these accounts to set aside pre-tax dollars. There are benefits and risks to either type of account.

The right account for you depends on your circumstances.

For instance, HSAs might not be a good fit for people with chronic health conditions since they need to be paired with high deductible health plans. FSAs might not be a good fit for people who are planning to move or change jobs in the next few years since FSAs are tied to your employer.

Looking at your budget, health, and plans is a great way to decide which account is best for you.