What Is an FSA vs. an HSA? Key Differences Explained

Healthcare savings accounts offer individuals a way to manage medical expenses while providing significant tax advantages. These accounts allow people to set aside funds for qualified health-related costs, including doctor visits, prescription medications, dental, and vision care. Understanding the distinct features of Flexible Spending Accounts (FSAs) and Health Savings Accounts (HSAs) is important for informed financial and health planning.

Core Features and Eligibility

Flexible Spending Accounts (FSAs) are employer-sponsored benefit plans allowing employees to contribute pre-tax dollars from their salary for eligible medical expenses. The employer typically owns and administers the FSA, meaning the account is tied to employment with that specific company.

In contrast, Health Savings Accounts (HSAs) are individual accounts owned by the account holder, offering greater portability. Eligibility for an HSA requires enrollment in a High-Deductible Health Plan (HDHP). For 2025, an HDHP must have an annual deductible of at least $1,650 for self-only coverage or $3,300 for family coverage. The plan’s annual out-of-pocket expenses, including deductibles and co-payments, cannot exceed $8,300 for self-only coverage or $16,600 for family coverage. Individuals generally cannot be enrolled in Medicare or other disqualifying health coverage to be eligible for an HSA.

Financial Mechanics: Contributions, Spending, and Rollover

Contributions to Flexible Spending Accounts are made through pre-tax payroll deductions. For 2025, the maximum employee contribution to a health FSA is $3,300.

Health Savings Account contributions can also be made through pre-tax payroll deductions or directly by individuals. For 2025, the maximum HSA contribution is $4,300 for self-only HDHP coverage and $8,550 for family HDHP coverage. Individuals aged 55 and older can make an additional $1,000 annually.

Both FSAs and HSAs can be used for qualified medical expenses, including deductibles, copayments, prescriptions, and dental or vision care. Funds are commonly accessed using a dedicated debit card or through reimbursement.

A key difference lies in their rollover rules. FSAs are generally subject to a “use-it-or-lose-it” rule, meaning unspent funds at year-end are forfeited. Employers may offer a grace period or allow a limited carryover, which is $660 for 2025. In contrast, Health Savings Account funds roll over indefinitely and remain with the account holder regardless of employment or health plan changes.

Tax Advantages and Investment Potential

Both Flexible Spending Accounts and Health Savings Accounts offer significant tax advantages. Withdrawals are tax-free when used for qualified medical expenses.

Health Savings Accounts provide a unique “triple tax advantage.” Beyond tax-deductible contributions and tax-free withdrawals, HSA funds can be invested, and earnings grow tax-free. This investment potential allows HSAs to function like a retirement savings vehicle, accumulating wealth over time. Account holders can invest HSA funds in various assets, similar to a 401(k) or IRA.

This growth opportunity makes HSAs valuable for saving for future healthcare costs, including those in retirement. After age 65, HSA funds can be withdrawn for any purpose without penalty, though non-qualified withdrawals are subject to income tax. Unlike HSAs, Flexible Spending Accounts do not offer investment opportunities, so funds do not grow over time.

Key Distinctions and Choosing the Right Account

Understanding the fundamental differences between Flexible Spending Accounts and Health Savings Accounts is crucial for making an informed choice.

Key Differences

Ownership and Portability: FSAs are employer-owned and generally not portable; HSAs are individually owned and remain with you.
Rollover Rules: FSAs are “use-it-or-lose-it” (with limited carryover); HSAs roll over indefinitely.
Investment Potential: HSAs offer investment growth; FSAs do not.
Eligibility: HSAs require an HDHP; FSAs are offered by employers.

When deciding between these accounts, consider your current health coverage and medical spending habits. An FSA might be more suitable if you have predictable, regular medical expenses and are not enrolled in an HDHP. Conversely, an HSA may be preferred if you are enrolled in an HDHP, have lower current medical expenses, and wish to save and invest for future healthcare costs, including expenses in retirement.