HSA vs FSA: Is it better to have an HSA or FSA?

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30 sec brief

Health savings accounts (HSA) and flexible spending accounts (FSA) are pre-tax accounts you can use to pay for healthcare expenses.

Health savings accounts (HSA) and flexible spending accounts (FSA) are pre-tax accounts you can use to pay for healthcare expenses.

With both an HSA and an FSA, you can pay for out-of-pocket medical expenses—like copays, medical bills, and vision expenses—while lowering your taxable income.

One of the ways an FSA differs from an HSA is that an FSA functions like a line of credit.

So if you, for example, have a flexible savings account balance of $50 in January but you need to buy prescription eyeglasses that cost $200, then you can. So long as you’re on track to save at least $200 by the year’s end. Beware that if you have any unused funds at the end of the year then after the grace period you will lose those funds. Whereas with an HSA account the money you save stays with you.

Another important difference is account ownership. A flexible spending account is actually owned by your employer and a health savings account is owned by you (keep this in mind if you tend to switch jobs).

Now that you have a high-level overview, we’ll cover the key differences between health savings and flexible spending accounts.

Jump to:

What is a Health Savings Account (HSA)?

HSA stands for health savings account. It’s a kind of bank account to save for medical expenses and to reduce your taxable income while you’re at it. In other words, HSAs are individually owned, tax-advantaged medical savings account.

And they’re available to both individuals and families that are enrolled in high deductible health plans (HDHP).

Based on 2019 IRS specifications, qualifying HSA health plans must have minimum deductibles of $1,350 for individuals and $2,700 for families. In addition, qualifying plans must have maximum out-of-pocket amounts of less than $6,750 for individuals and $13,500 for families.

Annual HSA contribution limits for 2019 are $3,500 for individual coverage and $7,000 for family coverage. If you have a mid-year change – like moving from self-only coverage to family coverage, or vice versa, then your annual contribution limit changes.

You can use HSA funds to pay for eligible expenses without federal tax liability or penalty. The funds deposited into an HSA are not subject to federal income tax and if not used, rollover year to year.

In summary, HSAs offer flexible and creative health savings options. The ability to save money for both short term and long term health expenses offers financial foresight in an unknown healthcare market. Tax-free deductions only increase the value of your HSA.

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What if I have a family status change midyear?
We wrote the Internet’s best blog post on midyear change →

Is the HSA subject to COBRA continuation?
No. An HSA is not a health benefit plan subject to continuation.

As a small business can I make HSAs available to my employees?
Absolutely. Lively provides employers and employees a streamlined, digital way to manage their health savings account. For more information visit,

What is a Flexible Spending Account (FSA)?

FSA stands for flexible spending account. It’s an account your employer makes available to you so you can pay for medical expenses with pre-tax dollars.

You simply tell your employer how much you want to contribute each month and then the funds are deducted from your paycheck.

FSA funds can be used to pay for medical, vision and dental expenses not covered by your health insurance plan.

Thousands of medical costs, from products to procedures, are covered under FSAs. For a full list of medical expenses that you can use your FSA (or HSA funds) on, check out Publication 502 from the IRS.

Also, if you’re re-enrolling into an FSA then some FSAs have up to a $500 carryover option. Or a grace period to use the money by mid-March of the following year. Be sure to check with your Employer.

In summary, using your FSA for healthcare related costs is a great way for you to save money. But if you want to save your funds long-term then an HSA is better for you.


What is a limited purpose FSA?
Normally, the IRS allows you to have either an HSA or an FSA, but not both. However, you can have an HSA and an LPFSA if your employer allows it. You can use your LPFSA to pay for vision and dental expenses before you meet your medical insurance deductible. In some cases, you can also use it for regular qualified medical expenses after you meet your deductible, depending on what rules your employer has established for LPFSAs.

Hey there! Hope you’re finding this post super helpful. Are you thinking about getting a tax-advantaged HSA to help keep your health care costs low? But first, you want to learn more? You’re in luck. We wrote the 2019 HSA Guidebook →

Benefits of HSA and FSA

HSA Benefits

Health Savings Accounts (HSAs) offer many benefits including:

  • Pre-tax contributions. Payroll deposits from your employer are usually made with pre-tax dollars, which means they are not subject to federal income taxes and (most) state income taxes. If your employer makes the contributions, the money is not included in your gross income.
  • Tax-deductible contributions. Any contributions made with after-tax dollars can be deducted from your gross income. For example, let’s say you make $40,000 dollars a year. If you contribute $3,000 to an HSA via a payroll deduction, you’ll be taxed as though you made $37,000, giving you money for health care costs and lowering your tax burden.
  • Multiple contribution sources. You can grow your HSA in multiple ways. Not only can you add money to your HSA, but your employer, relatives or anyone who would like to contribute can help your HSA grow.
  • Funds stay with you. One of the best perks of an HSA is that the money you save always stays with you. If money is left in your HSA at the end of the year, it stays put. No scrambling around trying to find ways to spend the money before the timer runs out.
  • Portable funds. Another benefit of an HSA is that you can “take it with you”. In today’s ever-changing world, being able to keep one account in place and add to it as you go is nice. Money in your HSA can be carried with you and is available even if you change health insurance plans, get a new job, or retire.

Another perk? Funds left in your account grow tax-free through interest or any investment gains!

FSA Benefits

Flexible Spending Accounts have great benefits too, including:

  • Money available from day one. Every penny you contribute to your FSA is available at the beginning of the benefit year (or shortly after the first contribution is made). Say you add $2,000 to your FSA for the year, you’ll likely contribute about $80 per paycheck. However, the entire $2,000 is available to use at any time even though you only make small contributions during the year.Another perk? If you leave a position before the year is over, the money spent from your FSA doesn’t have to be paid back.
  • No high deductible health insurance plan needed. Flexible Spending Accounts are offered by employers. If you don’t have a high deductible health insurance plan, but your employer offers an FSA, take a look at your budget to see if utilizing an FSA would make financial sense for you.
  • Set it up and relax. FSA accounts are typically set up during open enrollment periods. Once the paperwork is done, automatic contributions make saving for healthcare easy.Remember, be sure to re-enroll each year as most FSA’s don’t renew automatically.
    – Tax breaks. Since FSA contributions are made with pre-tax dollars, you keep more of your money! Make plans to use your money as FSAs are a “use it or lose it” option. Some FSAs have a grace period (some as long as March 15th of the following year), and some allow you to carry over up to $500 a year, but not all. Review your specific plan carefully so you don’t lose your money.
  • Purchase thousands of health-related items with pre-tax dollars. Thousands of items are available for purchase with your FSA account, you can see the full list here.
  • Simple to use. Many FSAs offer debit cards, and others require reimbursement forms to be filled out. Either way, using pre-tax dollars to help pay for health care makes a little paperwork worth it.

With so many healthcare savings options out there, it’s important to examine each type to see what makes sense for you.

Are you eligible for an HSA or FSA?

HSA Eligibility

You need an HSA-eligible health plan – like a high deductible health plan. That’s right. HSA eligibility is defined by the single requirement of having an HSA-eligible health plan.

Based on 2019 IRS specifications, qualifying HSA health plans must have minimum deductibles of $1,350 for individuals and $2,700 for families. In addition, qualifying plans must have maximum out-of-pocket amounts of less than $6,750 for individuals and $13,500 for families.

FSA Eligibility

To be eligible for an FSA, you just have to be an employee of an employer who offers an FSA. Unlike an HSA, you do not have to be covered by a HDHP. You can have several insurance plans or none. You’re not even required to have health coverage to be eligible for an FSA.


I’m a dependent. Do I qualify for HSA?
If you are claimed as a dependent on someone else’s tax return then you don’t qualify for an HSA.

Is Medicare a high-deductible plan?
HSA contributions are not compatible with Medicare enrollment. And be on the lookout for “retroactive” Medicare coverage. If you are retroactively covered (either for individual or family coverage), this can also negate your ability to contribute for that retroactive time period.

Is an HSA or FSA better for you?

Things like your flexibility in contributing, the ability to keep your unused balance and additional tax benefits make HSAs the wisest choice. So sign up for an HSA – it’s free →

Disclaimer: the content presented in this article are for informational purposes only, and is not, and must not be considered tax, investment, legal, accounting or financial planning advice, nor a recommendation as to a specific course of action. Investors should consult all available information, including fund prospectuses, and consult with appropriate tax, investment, accounting, legal, and accounting professionals, as appropriate, before making any investment or utilizing any financial planning strategy.

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