HSA vs. FSA: Which Account Is Better for You?

Health Savings Accounts (HSAs) and Flexible Spending Accounts (FSAs) are tax-advantaged accounts designed to help pay for healthcare costs. Both allow you to set aside pre-tax money from your paycheck, which lowers your taxable income. These funds can then be used for qualified medical expenses. While they share this purpose, the two accounts operate under different rules regarding eligibility, fund management, and long-term savings potential.

Eligibility and Contribution Rules

To contribute to an HSA, you must be enrolled in a qualified High-Deductible Health Plan (HDHP). For 2025, the IRS defines an HDHP as a plan with a minimum deductible of $1,650 for an individual and $3,300 for a family. These plans also have a maximum out-of-pocket spending cap of $8,300 for an individual and $16,600 for a family.

FSA eligibility is not tied to the type of health plan you have. It is an employer-sponsored benefit, meaning you can only open an FSA if your employer offers one. Self-employed individuals are not eligible to open an FSA. This makes FSAs accessible to many people with lower-deductible health plans who do not qualify for an HSA.

Contribution rules also differ. For 2025, an individual with self-only HDHP coverage can contribute up to $4,300 to an HSA, while those with family coverage can contribute up to $8,550. Individuals aged 55 or older are permitted to make an additional “catch-up” contribution of $1,000. In contrast, the 2025 contribution limit for a health FSA is $3,300 per employee.

Account Ownership and Fund Management

An HSA is owned by the employee and is a personal savings account that is completely portable. This means you take it with you, along with the entire balance, if you change jobs or retire. This ownership ensures the funds you contribute are yours to manage for future medical expenses. You can also use HSA funds to pay for COBRA premiums if you become unemployed.

FSAs operate under a different model where the account is owned by the employer. If you leave your job, you typically forfeit any remaining money in your FSA. This lack of portability means the funds are tied directly to your employment with the company that offers the plan.

The treatment of unused funds at the end of the year is another difference. HSAs allow you to roll over the entire unused balance from one year to the next, indefinitely. FSAs are subject to the “use-it-or-lose-it” rule, where any money left in the account is forfeited to the employer. Employers may offer some relief by providing either a grace period of up to two and a half months to spend the remaining funds or allowing a limited carryover of up to $660 into the next plan year.

HSAs also offer an investment component that FSAs lack. Once your HSA balance reaches a certain threshold, you can invest the funds in a selection of mutual funds, stocks, and other investment vehicles. This allows your healthcare savings to grow tax-free over the long term. FSAs are spending accounts and do not have an investment feature.

Key Tax Differences

The tax treatment of HSAs is a “triple-tax advantage.” First, contributions are made on a pre-tax basis if through payroll deduction, or they are tax-deductible, which reduces your taxable income. Second, the funds within the HSA can be invested and grow tax-free. Third, withdrawals for qualified medical expenses are not taxed.

FSAs provide a “double-tax advantage.” Contributions are made with pre-tax dollars, which lowers your taxable income for both federal income and FICA taxes (Social Security and Medicare). Withdrawals for qualified medical expenses are also tax-free.

The primary tax difference lies in the growth potential. Because FSA funds cannot be invested, they do not have the capacity for tax-free growth. The tax benefits of an FSA are confined to the initial contribution and the subsequent tax-free withdrawal for expenses.

Using an HSA and FSA Together

You generally cannot contribute to both a general-purpose health FSA and an HSA in the same year. IRS rules prohibit this “double-dipping” on tax-advantaged funds. Enrolling in a standard medical FSA makes an individual ineligible to contribute to an HSA for that year, even with a qualifying HDHP.

A specific type of FSA, a Limited Purpose FSA (LPFSA), can be used with an HSA. An LPFSA is restricted to covering only eligible dental and vision expenses. This arrangement allows you to use the LPFSA for predictable costs like glasses and dental cleanings, while preserving HSA funds for medical expenses or long-term growth.

Another account that can be paired with an HSA is a Dependent Care FSA. This account is separate from a health FSA and is used for expenses related to the care of dependents, such as daycare. Since its purpose is not for personal medical expenses, contributing to a Dependent Care FSA does not affect HSA eligibility.

A Framework for Choosing Your Account

For individuals focused on long-term savings and investment, the HSA is a strong choice. If you are enrolled in an HDHP and can contribute more than you spend annually, the HSA allows you to build a tax-free fund. The ability to roll over unused funds and invest them for growth makes it a useful retirement planning tool for medical expenses.

If you do not have access to an HDHP, the FSA is a good vehicle for tax savings on known medical costs. For those with predictable expenses such as prescriptions or co-pays, an FSA provides a way to reduce taxable income. Planning your contributions to match your expected annual expenses helps you use the pre-tax benefit without risking forfeiture.

For those looking to maximize tax advantages, combining an HSA with a Limited Purpose FSA can be an effective strategy. This approach is for individuals with an HDHP who also anticipate significant dental and vision costs. By directing these expenses to the LPFSA, you can reserve HSA contributions for major medical events or long-term investment.