| Aspect | Health Savings Account (HSA) | Flexible Spending Account (FSA) |
|---|---|---|
| Tax Advantages | Contributions are tax-deductible, and qualified withdrawals are tax-free. Interest or investment earnings may also grow tax-free. | Contributions are tax-deductible, and qualified withdrawals are tax-free for eligible medical expenses. |
| Ownership and Portability | Owned by the individual, and the account is portable, meaning it can move with the individual even if they change jobs. | Typically owned by the employer, and portability depends on employer policies. In some cases, funds may be forfeited if not used by the end of the plan year. |
| Account Type | Can be paired with a high-deductible health plan (HDHP), and individuals must meet HDHP criteria to contribute. | Available with various health insurance plans, including HDHPs, but not restricted to them. |
| Contribution Limits (2022) | Individual: $3,650; Family: $7,300, with an additional $1,000 catch-up contribution for individuals 55 and older. | $2,850, with some employers offering a $500 rollover or a grace period to use funds after the plan year ends. |
| Rolling Over Funds | Funds roll over from year to year, and there is no "use it or lose it" rule. The account holder retains accumulated funds. | Employers may offer a carryover of up to $500 or a grace period of 2.5 months after the plan year ends. Any unused funds beyond these options may be forfeited. |
| Withdrawal for Non-Medical Expenses | If withdrawn for non-medical expenses before age 65, the withdrawal is subject to income tax and a 20% penalty. After age 65, withdrawals for non-medical expenses are subject to income tax but not the penalty. | If withdrawn for non-medical expenses, the entire amount is subject to income tax and a 20% penalty, regardless of age. |
| Eligible Expenses | Covers qualified medical expenses as defined by the IRS, including deductibles, co-payments, prescriptions, and certain over-the-counter items. | Covers qualified medical expenses as defined by the IRS, including deductibles, co-payments, prescriptions, and certain over-the-counter items. |
| Employer Contributions | Employers, individuals, or both may contribute. Employer contributions count toward the annual contribution limit. | Employers may contribute, and contributions do not count toward the individual's annual contribution limit. |
| Portability After Leaving Employer | Portable, and individuals can keep and use the HSA even if they change jobs or retire. | Portability depends on employer policies. Some employers allow a grace period or a carryover, while others may have a "use it or lose it" policy. |
| Investment Options | Many HSAs offer investment options, allowing individuals to invest a portion of their HSA funds in various instruments. | Generally does not offer investment options. Funds are usually held in a non-interest-bearing account. |
In summary, while both Health Savings Accounts (HSAs) and Flexible Spending Accounts (FSAs) offer tax advantages for qualified medical expenses, there are key differences in terms of ownership, portability, contribution limits, rollover rules, withdrawal penalties, and investment options. HSAs are typically owned by individuals and offer greater flexibility, while FSAs are often owned by employers, with more restrictive rollover options.