Health Savings Account Vs Flexible Spending Account
Because HSAs are still fairly new, often people get confused between a health savings account and a flexible spending account. To understand the difference between the two then, read on.
There are two main differences between a Health Savings Account and a Flexible Spending Account. First, to have an HSA, an individual must first have a qualifying High Deductible Health Plan (HDHP); which is an insurance policy with a higher deductible, a lower monthly premium, and generally a cap on maximum out of pocket expenses. Second, an HSA is owned by the individual who opens it and can stay with them forever. An FSA on the other hand is owned by the employer; so if an individual leaves their job, anything left in the FSA, including the individuals contributions are kept by their former employer.
Some of the benefits of having a HSA account include:
Typically lower monthly insurance premiums HSAs require the individual to maintain a High Deductible Health Plan. HDHPs generally have lower monthly premiums than traditional health insurance plans.
Tax Benefits Like an FSA, all contributions made into HSA account can be made pre-tax if part of an employer sponsored plan. If the contributions to the HSA are part of an individual plan, then contributions made to the HSA may be taken as an above the line tax deduction. An HSA has other tax benefits. Money deposited into an HSA grows tax free and when withdrawn, if spent toward qualified medical expenses, may be spent tax free.
Invest Once money is deposited into an HSA account, it may be invested in different investment vehicles. Individuals should speak with their bank or broker to understand the investment options available. Healthy individuals who do not need the money from the account immediately, may let the money in their HSA grow tax free, and then, if they become ill at some point in the future, between the contributions and the interest on their HSA, hopefully they will have plenty of cash to pay for those future medical expenses. Once again, the unused money in an individuals HSA account will roll over from year to year and accumulate interest tax free.
No Expiration. Money deposited into Flexible Spending Account must be spent by the end of each year or it is forfeited. On the other hand money deposited into an HSA belongs to the individual on the account and never expires, even if the individual changes jobs. If, in the new job, the individual has a qualifying High Deductible Health Plan, they may continue to contribute to their HSA. If they do not have a qualifying HDHP in their new job, they will not be able to make new contributions to their HSA, but they will be able to use the funds in their HSA for qualified medical expenses until such time as they close the account.
Both Health Savings Account and Flexible Spending Account have their own benefits and serve as a valuable tool to help finance medical expenses. HSAs provide far greater flexibility than an FSA in terms of portability, utility and from a tax perspective.
There are two main differences between a Health Savings Account and a Flexible Spending Account. First, to have an HSA, an individual must first have a qualifying High Deductible Health Plan (HDHP); which is an insurance policy with a higher deductible, a lower monthly premium, and generally a cap on maximum out of pocket expenses. Second, an HSA is owned by the individual who opens it and can stay with them forever. An FSA on the other hand is owned by the employer; so if an individual leaves their job, anything left in the FSA, including the individuals contributions are kept by their former employer.
Some of the benefits of having a HSA account include:
Typically lower monthly insurance premiums HSAs require the individual to maintain a High Deductible Health Plan. HDHPs generally have lower monthly premiums than traditional health insurance plans.
Tax Benefits Like an FSA, all contributions made into HSA account can be made pre-tax if part of an employer sponsored plan. If the contributions to the HSA are part of an individual plan, then contributions made to the HSA may be taken as an above the line tax deduction. An HSA has other tax benefits. Money deposited into an HSA grows tax free and when withdrawn, if spent toward qualified medical expenses, may be spent tax free.
Invest Once money is deposited into an HSA account, it may be invested in different investment vehicles. Individuals should speak with their bank or broker to understand the investment options available. Healthy individuals who do not need the money from the account immediately, may let the money in their HSA grow tax free, and then, if they become ill at some point in the future, between the contributions and the interest on their HSA, hopefully they will have plenty of cash to pay for those future medical expenses. Once again, the unused money in an individuals HSA account will roll over from year to year and accumulate interest tax free.
No Expiration. Money deposited into Flexible Spending Account must be spent by the end of each year or it is forfeited. On the other hand money deposited into an HSA belongs to the individual on the account and never expires, even if the individual changes jobs. If, in the new job, the individual has a qualifying High Deductible Health Plan, they may continue to contribute to their HSA. If they do not have a qualifying HDHP in their new job, they will not be able to make new contributions to their HSA, but they will be able to use the funds in their HSA for qualified medical expenses until such time as they close the account.
Both Health Savings Account and Flexible Spending Account have their own benefits and serve as a valuable tool to help finance medical expenses. HSAs provide far greater flexibility than an FSA in terms of portability, utility and from a tax perspective.
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