A Comprehensive Guide To HSAs And FSAs

By Martin B January 1, 2023

HSAs and FSAs are two popular types of tax-favored accounts that aid individuals in reducing their healthcare costs. These accounts allow people to deposit pre-tax money to cover medical expenses that qualify.

However, HSAs and FSAs have significant differences.

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A major contrast is their eligibility criteria. Only those who have a high-deductible health plan can access HSAs. On the other hand, FSAs are available to anyone who is eligible for a health plan through their employer, regardless of the type of plan they have.

Another key difference between HSAs and FSAs is the rollover rules. An HSA provides the benefit of carrying over the funds from one year to the next, allowing for tax-free growth through investments. This means that individuals can accumulate a significant amount of money in their HSA over time.

On the other hand, FSAs generally have a “use-it-or-lose-it” policy, implying that any unutilized funds at the end of the coverage year will be lost. Nonetheless, certain employers may offer a grace period or permit employees to carry over a maximum of $550 of unspent funds to the succeeding coverage year.

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There are also differences in contribution limits between HSAs and FSAs. In 2022, individuals can contribute up to $3,650 to an HSA if they have individual coverage or up to $7,300 if they have family coverage. The highest amount that can be deposited into an FSA in 2022 is $2,850.

HSA contributions are tax-deductible. In addition, any interest or investment earnings in the HSA are tax-free.