| Aspect | Flexible Spending Account (FSA) | Health Savings Account (HSA) |
|---|---|---|
| Tax Advantages | Contributions are made with pre-tax dollars, reducing taxable income. | Contributions are tax-deductible, reducing taxable income. Additionally, withdrawals for qualified medical expenses are tax-free. |
| Ownership of Account | Typically owned and funded by the employer, although employees contribute. | Owned and funded by the individual, and contributions can be made by both employers and employees. |
| Portability | Generally not portable, meaning funds are forfeited if not used by the end of the plan year (some plans may allow a grace period or rollover). | Highly portable, and the account is owned by the individual, allowing funds to roll over from year to year and even be transferred between employers. |
| Account Access | Funds are available for use as soon as they are contributed, even if the full annual contribution amount has not been deposited. | Contributions may need to accumulate before funds are available for use, depending on the account balance and the chosen investment options. |
| Eligibility Requirements | Available to employees who have an employer-sponsored plan that includes an FSA option. | Available to individuals who have a High Deductible Health Plan (HDHP) and meet other HSA eligibility criteria. |
| Contribution Limits | Contributions are subject to annual limits set by the IRS. | Contributions are subject to annual limits set by the IRS, and the limits are typically higher than those for FSAs. |
| Roll-Over of Funds | Generally, unused funds may be subject to a "use it or lose it" rule, with some plans offering a grace period or allowing a limited rollover amount. | Funds can roll over from year to year, and there is no "use it or lose it" rule. The account remains with the individual even if they change employers. |
| Investment Opportunities | Typically does not offer investment options. | Allows for investment opportunities once a certain account balance threshold is met, providing the potential for growth over time. |
| Withdrawal for Non-Medical Expenses | Subject to penalties if used for non-qualified medical expenses. | Subject to penalties if used for non-qualified medical expenses, plus an additional tax penalty for individuals under the age of 65. After age 65, withdrawals for non-medical expenses are penalty-free but still subject to income tax. |
| Role in Retirement | Generally, not used as a retirement savings vehicle. | Can be used as a supplemental retirement savings vehicle. After age 65, withdrawals for non-medical expenses are penalty-free, and funds can be used for any purpose without penalty. |
In summary, while both Flexible Spending Accounts (FSAs) and Health Savings Accounts (HSAs) offer tax advantages for qualified medical expenses, they differ in ownership, portability, investment opportunities, contribution limits, and withdrawal rules. FSAs are typically owned by the employer, have lower contribution limits, and may have a "use it or lose it" rule. HSAs are owned by the individual, offer portability and investment options, have higher contribution limits, and can serve as a supplemental retirement savings tool.