FSA vs HSA: What You Should Know

When managing healthcare costs, tax-advantaged accounts like flexible spending accounts (FSAs) and health savings accounts (HSAs) can help you save money. Both accounts allow you to set aside pre-tax dollars to pay for qualified medical expenses, but what's the difference between FSA and HSA?

Here's some information that can help you decide if an HSA or an FSA is right for you.

 

What is A Flexible Spending Account (FSA)

A flexible spending account, or flexible spending arrangement, is an employer-sponsored benefit that lets you set aside pre-tax dollars from your paycheck for health care and dependent care expenses.

FSAs are only available through employers who offer them as part of their benefits package, which means self-employed individuals or business owners cannot establish FSAs for themselves.  

When you enroll in an FSA during 2025, you can contribute up to $3,300. One of the benefits of this account is that you get immediate access to your full annual contribution amount from day one, even before you’ve “paid it back” through payroll deductions. Once you’re enrolled, you generally cannot change your contribution amount mid-year unless you experience a qualifying life event, such as marriage, divorce or the birth of a child.  

Your employer may choose to contribute to your FSA, though they aren’t required to. These additional contributions do not count toward your annual limit. If an employee’s spouse has an FSA plan through their employer, the spouse may also contribute up to $3,300 to that plan. This means that couples in this situation can combine to save a total of $6,600 in FSA funds.

There are multiple ways you might access your FSA funds, including:

• A debit card linked to your FSA account.
• An online portal or another system where you request reimbursement for expenses from your FSA account.

However, you'll need to speak with your employer's human resources department to learn the specifics for using funds in your FSA.

Do FSAs Roll Over?

FSAs work on a “use-it-or-lose-it” basis, meaning you must use all funds within the plan year or forfeit them.

However, employers may offer:

1. A grace period of up to 2 ½ extra months after the plan year ends to use the remaining funds. 
2. A carryover of up to $660 (for 2025) to use in the following year to year. 

Employers can offer either option, but not both. Some may offer neither, in which case you forfeit unused funds when the plan year ends. To avoid losing money, try to avoid contributing more than you expect to spend on copayments, coinsurance, prescriptions and other qualified healthcare costs. 

 

What is A Health Savings Account (HSA)

A health savings account is a personal savings account specifically used for healthcare expenses.

HSAs have a few tax advantages, including:

• Contributions can reduce your taxable income,
• Earnings might grow with tax-free interest.
• Withdrawals for qualified medical expenses are tax-free,

To be eligible for an HSA, you must be enrolled in an HSA-eligible health plan, which is typically called a High Deductible Health Plan (HDHP). These traditional health plans have lower monthly premiums but higher deductibles. For 2025, a qualifying HDHP must have a minimum deductible of $1,650 for individual coverage or $3,300 for family coverage. 

You’re also only eligible to contribute to an HSA if:

• You aren’t covered by another non-HDHP health plan (including a spouse’s or parent’s plan).
• You’re not enrolled in Medicare.
• You cannot be claimed as a dependent on someone else’s tax return.

In 2025, the contribution limits are up to $4,300 for self-only coverage or $8,550 for family coverage. If you’re 55 or older, you can make additional “catch-up” contributions of up to $1,000 annually.  

For retirement planning, HSAs offer an advantage: after age 65, you can use HSA funds for non-medical expenses without penalty. However, you’ll need to pay income tax, similar to a traditional health 401(k). 

The Differences Between FSA and HSA

Both FSAs and HSAs are accounts used to pay for healthcare expenses, but they follow different guidelines.

Here’s a side-by-side comparison:

	FSA	HSA
Eligibility	Employees whose employers offer the benefit	Individuals enrolled in a qualifying HDHP
2025 Contribution Limits	$3,300 for individual coverage; $6,600 for family coverage	$4,300 for individual coverage; $8,500 for family coverage; $1,000 catch-up for those 55+
Employer Contributions	Optional, don’t count toward your limit	Optional, do count toward the annual limit
Fund Access	Full annual contribution amount available immediately	Only HSA funds that have been deposited are available
Rollover	No, unless an employer offers exceptions like a grace period or rollover	Yes – HSA balances roll over year to year
Investment Options	No	Yes
Tax Advantages	Pre-tax contributions; tax free withdrawals for qualified medical expenses	Tax-deductible contributions, tax free growth and tax free withdrawals for qualified medical expenses
After Age 65	No special provisions	Can withdraw for non-medical expenses without penalty (but pay income tax)
Portability	Lost when leaving an employer	Stays with you regardless of employment

 

Eligible Expenses for HSA and FSA

Knowing what qualifies as an eligible expense can help you maximize the value of your savings account and avoid potential tax penalties for non-qualified withdrawals.

Here are common eligible expenses for both HSA and FSA funds:

• Doctor visits, hospital services and surgery costs
• Prescription medications and insulin
• Laboratory fees and diagnostic tests
• Medical equipment like crutches, wheelchairs and oxygen supplies
• Dental services, including cleanings, fillings, extractions and orthodontics
• Vision care, including eye exams, glasses, contacts and laser eye surgery
• Mental health counseling and therapy services
• Physical therapy and chiropractic treatments
• Hearing aids and batteries
• Over-the-counter medications with a prescription
• Menstrual care products and birth control treatment
• Prenatal care and childbirth classes
• Smoking cessation and addiction treatment programs
• Dental and vision expenses may also qualify under a limited purpose FSA 

 

Can I have both an FSA and HSA?

In general, you cannot contribute to an FSA and an HSA at the same time. Since both accounts get funded with pre-tax dollars, IRS regulations prevent simultaneous participation in both. 

However, there is an exception: you can pair an HSA with a Limited Purpose Health Care FSA (sometimes called a LEX HCFSA), which only covers dental and vision expenses. This type of account works alongside an HSA and can only be used for eligible dental and vision expenses. This allows you to maximize tax savings while preserving your HSA funds for other medical expenses or long-term growth.  

 

Choosing the Right Account

Choosing between an FSA and HSA depends on your healthcare needs and financial goals.

An FSA might be right for you if:

• Your employer doesn’t offer a qualified high deductible health plan HDHP
• You prefer lower deductibles
• You anticipate large healthcare expenses in the current year
• You need immediate access to your full annual contribution amount
• You’re enrolled in Medicare
• You’re evaluating what is better than FSA when HSA isn’t an option

On the other hand, an HSA might be a better fit if:

• You’re enrolled in a qualified high deductible health plan HDHP
• You’re in good health with few expected medical expenses
• You want to build long-term healthcare savings vs flexible spending 
• You want investment options for financial growth
• You’re planning for healthcare costs in retirement using HSA funds

As with any financial decision, picking between an HSA and FSA requires evaluating your unique situation. Working with a wealth planner can help you decide what options might be right for you.