| Aspect | Flexible Spending Account (FSA) | Health Savings Account (HSA) |
|---|---|---|
| Ownership | Generally owned by the employer, although employees contribute through salary deductions. | Owned by the individual, allowing for personal control and portability even if changing employers. |
| Eligibility | Available to employees offered by their employer as part of their benefits package. | Requires enrollment in a high-deductible health plan (HDHP) to qualify for an HSA. Individuals can open HSAs independently if they have an HDHP. |
| Contributions | Contributions are made through pre-tax payroll deductions, and employers may also contribute. | Contributions can be made by the individual, employer, or both, up to the annual limit set by the IRS. Contributions can be made on a pre-tax basis. |
| Annual Contribution Limit (2022) | $2,750 (2022) for individual plans; employers may set lower limits. | $3,650 for individual coverage; $7,300 for family coverage (2022). Additional catch-up contributions allowed for those aged 55 and older. |
| Roll-over of Funds | Limited rollover of up to $550 to the next plan year or a grace period of 2.5 months. | Funds roll over from year to year and continue to grow tax-free. There is no "use it or lose it" rule. |
| Account Portability | Generally not portable if an employee changes employers, and funds may be forfeited if not used by the end of the plan year. | Highly portable, and individuals retain ownership and control even if they change employers. |
| Withdrawals for Qualified Expenses | Funds can be used for eligible medical expenses incurred during the plan year. | Withdrawals are tax-free when used for qualified medical expenses at any time, regardless of the year in which the contributions were made. |
| Investment Opportunities | Limited investment options, and interest earned is minimal. | Typically offers a range of investment options, allowing individuals to grow their funds over time. |
| Tax Treatment of Withdrawals | Withdrawals are tax-free when used for eligible medical expenses. | Tax-free withdrawals for qualified medical expenses; non-medical withdrawals before age 65 may incur taxes and penalties. After age 65, non-medical withdrawals are penalty-free but subject to income tax. |
| Employer Contributions | Employers can contribute to the FSA, but the amount is determined by the employer. | Employers can contribute to the HSA, and contributions may come from both the employer and the employee, subject to annual limits. |
| HSA Triple Tax Advantage | Not applicable. | HSAs offer a triple tax advantage: contributions are tax-deductible, earnings grow tax-free, and withdrawals are tax-free for qualified medical expenses. |
In summary, both FSAs and HSAs offer tax advantages for healthcare expenses, but they differ in terms of ownership, eligibility, contributions, rollover of funds, portability, investment opportunities, and tax treatment of withdrawals. HSAs provide more flexibility, portability, and investment options, making them a popular choice for individuals in high-deductible health plans