HSA vs. FSA: Differences and more
Health savings accounts (HSAs) and flexible spending accounts (FSAs) allow people to use pretax income to pay for eligible medical care. An individual can set up an HSA, whereas an employer sets up an FSA.
A flexible spending account (FSA) is an employer-provided account for eligible healthcare expenses. Contributions are tax-free, saving employees about 30% on medical costs. The yearly limit is $3,300 per person.
Employers may also contribute, but funds usually can’t be used for a new job. A person must use the money within a year, though some plans offer a grace period of a few months or a carryover of up to $660 in 2025.
On the other hand, a health savings account (HSA) is available only with a high deductible health plan (HDHP), which has lower premiums but higher out-of-pocket costs.
A person’s contributions are tax-free, up to $4,300 per person or $8,550 per family in 2025, and funds roll over each year, allowing savings to grow. Some HSAs also earn tax-free interest or investment income.
This article will examine the differences between FSAs and HSAs, how to set them up, and how to choose between them.
HSA vs FSA comparison chart
The following table shows the key differences between FSAs and HSAs:
FSAHSA
Who is eligible?A person is eligible for an FSA if their employer offers it as a benefit. A person with an eligible HDHP can qualify for an HSA if they have no other health plans, are not on Medicare, and are not listed as a dependent on another person’s tax return.
Maximum annual contributionup to $3,300 per individual in 2025 up to $4,300 per individual or $8,550 per family in 2025
Account ownershipA person’s employer. An individual.
Who can contribute to the account?A person and their employer. A person, their employer, their spouse, and their family members.
Rollover rulesThe employer can keep any money left in the account by the end of the year. However, depending on the plan, a person can have a grace period or carry over up to $660 in 2025 into the next year. All money in the account rolls over into the next year.
Is the account portable?No. The account belongs to a person’s employer, and they cannot take any funds with them if they change jobs. Yes.
When can contributions change?People must decide at the start of the year how much they want to contribute to their FSA. An employer may allow midyear changes due to qualifying events, such as a change in marital status or the number of dependents. A person can change their HSA contributions at any time.
Penalties for withdrawing funds for nonmedical expensesA person cannot use FSA funds for nonmedical purchases. Any funds withdrawn for nonmedical purposes will be taxed. If a person is under 65 years old, they will have to pay a 20% tax penalty.
Investment optionsNone. Possibility for interest accrual in qualifying HSAs.
Is it better to have an HSA or an FSA?
The savings plan a person chooses depends on their circumstances. The ideal plan for one person may not be suitable for another. Keep reading to learn more about the specific benefits of each.
FSA benefits and downsides
FSAs may benefit a person who needs access to medical funds immediately. Once people decide how much they want to pay toward their FSA per month, they can receive a reimbursement for the annual amount.
Unlike an HSA, an FSA holder can have other health insurance plans and Medicaid. However, the funds must be used within the year, or the money will be forfeited.
The account is also tied to an employer, meaning a person can lose the money if they change jobs. The annual limit is also lower than that of an HSA, and a person cannot invest the funds to grow over time.
HSA benefits and downsides
There are various benefits to using an HSA, including:
However, an HSA requires enrollment in an HDHP, which can mean high upfront medical costs before insurance coverage begins. Contribution limits may also not cover very large expenses, and withdrawals for non-medical purposes before age 65 face both taxes and penalties.
A person must also keep records to prove qualified spending. If invested, the funds carry market risks and may be subject to account fees.
Examples of an FSA and an HSA
FSA example
A person receives an FSA from their employer. They choose to contribute $2,300 annually because of an ongoing medical issue. They pay $200 into their account per month, and their employer pays $1,000 per year.
In March, the person needs $1,300 for an operation. Although they have only paid $600 into their FSA, they have access to the full $2,300. This allows them to pay for their procedure and pay back the remaining costs over time.
The person makes $20,000 per year. However, due to their FSA, they pay tax on only $17,700.
HSA exampleA person sets up an HSA alongside their HDHP. They contribute $200 per month ($2,400 per year), well under the $4,300 annual limit for individuals. Their HDHP premium is $50 per month, and their deductible is $3,000.
After 5 years with no withdrawals, they have saved $12,000 tax-free in their HSA. Then they receive a $6,000 medical bill. They pay the first $3,000 from their HSA to meet the deductible.
After that, their HDHP begins covering costs, and (depending on plan coinsurance) the insurer may cover most or all of the remaining $3,000.
They now have $9,000 left in their HSA. All contributions and qualified medical withdrawals remain tax-free.
Can a person have both an HSA and an FSA?
A person cannot have an FSA and an HSA unless they have a Limited Expense Health Care Account FSA (LEX HCFSA).
There are three types of FSA available:
Health Care FSA (HCFSA): An HCFSA can help a person pay for any eligible healthcare costs.
LEX HCFSA: A LEX HCFSA can be used to pay for any eligible dental or vision care costs. Other medical costs are not eligible. A person can also have an HSA if they have a LEX HCFSA.
Dependent Care FSA (DCFSA): A person can use a DCFSA to pay for any eligible dependent care services belonging to their child or another dependent.
How do I sign up for an FSA or an HSA plan?
If a person’s employer provides an FSA, the employer should set it up for them. To set up an HSA, a person must have an HDHP. A person may receive an HSA from their employer.
If a person wants to set up their own HSA, they can check whether their HDHP partners with any HSA providers. Alternatively, a person can ask their bank if they provide this.
Summary
Although FSAs and HSAs are medical savings accounts, they have many differences. FSAs can provide funds more quickly. HSAs are more flexible.
People should research both accounts before deciding which one is right for them.