What is the difference between HSA and FSA?

What is the difference between HSA and FSA?

HSA stands for Health Savings Account, while FSA stands for Flexible Spending Account. HSAs are typically paired with high-deductible health plans and allow you to save money tax-free for medical expenses. FSAs, on the other hand, are employer-established benefit plans that allow you to set aside pre-tax dollars for out-of-pocket health expenses.

Can you explain the tax benefits of each?

Sure! HSAs offer triple tax benefits: contributions are tax-deductible, the money grows tax-free, and withdrawals for qualified medical expenses are also tax-free. FSAs allow you to use pre-tax dollars for medical expenses, reducing your taxable income, but the funds typically must be used within the plan year.

What happens to the money in an FSA if I don't use it?

If you don't use the money in an FSA by the end of the plan year, you generally lose it, a concept known as 'use-it-or-lose-it.' However, some plans may offer a grace period or allow you to carry over a limited amount to the next year.

Can I have both an HSA and an FSA?

Yes, you can have both an HSA and an FSA, but there are some restrictions. If your FSA is a general-purpose FSA, you may not be eligible to contribute to an HSA. However, you can have a limited-purpose FSA that only covers dental and vision expenses.