FSA vs. HSAFSA) 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 AccountsFSA’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.
- Funding is capped at $2,500 per year. An employee can often choose how much to deduct from their pay cheque over the year, so less than $2,500 may be funded.
- Funds do not typically rollover to the following year. The Affordable Care Act now allows up to $500 to be carried over but that is at the employer’s discretion. Any funds not spent during the year that aren’t rolled over are forfeited.
- Contributions are not subject to tax.
- Funds are lost if you are fired or quit from your current job as the owner of the account is the employer.
- Qualified medical expenses are eligible for reimbursement from FSA’s and receipts must be provided.
- Money can be accessed before it is actually paid in, this means that on the first of the year an employee can use the full amount they are eligible for.
Health Savings AccountsHSA’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:
- Contributions can be made by an individual, an employer, or any other individual and are not taxable in any capacity.
- Contribution limits exist, with different limits for individual and family accounts. Older members (55 to 65) can contribute up to $1,000 more than the limits as a ‘catch-up’ contribution.
- Unused funds can be rolled over to later years.
- Funds can be withdrawn to pay Qualified medical expenses (as deemed by the IRS) and to pay health insurance premiums.
- Funds can be withdrawn for non-health care related expenses but are then included in income and a 20% penalty is applied if the individual is under 65.
FSA vs. HSAWhen 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
Posted in ...Business