What are the differences between FSA and HSA accounts?

What are the differences between FSA and HSA accounts?

FSA (Flexible Spending Account) and HSA (Health Savings Account) are both tax-advantaged accounts, but they have key differences. FSAs are owned by employers, while HSAs are owned by individuals. HSAs require a high-deductible health plan, whereas FSAs do not.

Can you explain the contribution limits for each?

For 2023, the contribution limit for an FSA is $3,050, while for an HSA, it's $3,850 for individuals and $7,750 for families. People over 55 can contribute an additional $1,000 to their HSA.

What happens to the funds if I don't use them?

FSA funds typically expire at the end of the plan year, although some plans offer a grace period or allow a small amount to roll over. HSA funds, however, roll over year after year and can be used for future medical expenses.

Are there any tax implications I should be aware of?

Yes, contributions to both accounts are tax-deductible, but withdrawals from an HSA for qualified medical expenses are tax-free. Withdrawals from an FSA are also tax-free, but any unused funds may be forfeited.