Flexible Savings Accounts (FSA) and Health Savings Accounts (HAS) are both tax-advantaged accounts (as deemed by the IRS) that can be used to pay healthcare expenses. There are significant differences, however, and it is important to understand those differences in terms of where you withdraw funds or when you have the option from your employer to choose between an FSA vs. an HSA.

Flexible Savings Accounts

FSA’s are funded by employers (through deductions from employees pay checks) and can be used by any employees determine by the employer to be eligible, whether they have health insurance or not.
Key aspects of FSA’s include:Employers like to use FSA’s as there is a chance they get the full funds back when employees don’t utilize the expense or don’t have Qualified medical expenses during the year. This is a clear benefit for employers compared to accounts they have to fund and will not get back. If someone doesn’t have health insurance that should likely be funded before you consider putting funds into an FSA, as the overall coverage and benefits will be more substantial.

Health Savings Accounts

HSA’s are employee funded accounts to reimburse medical expenses and are only available to those who are enrolled in an HDHP and do not receive any other non-HDHP coverage (i.e. Medicare or a spouse’s plan). Key aspects of HSA’s include:Employees often like HSA’s due to the increased flexibility and the ability to withdraw funds for non-health expenses if a significant balance accrues (even if a penalty is involved). As the employees own the actual account they can see significant growth through investment if they don’t spend much from the account each year. In a way this provides one more tax shielded investment platform for retirement, with the added benefit that medical expense withdrawals will be tax free.


When an employee has a choice they should draw down their FSA plan before touching their HSA. This is because the funds will be lost if they are not used during the year, and the HSA can also be carried over for many years and even used for non-medical expenses. The HSA can be a useful investment or retirement saving mechanism to use, whereas an FSA has no capacity to save into the future.
By InvestorGuide Staff

Copyrighted 2020. Content published with author's permission.

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