An apple and an orange sit side by side on white backdrop

How is an HSA different from an FSA?

Feb 11, 2021

Empower Insights

Understanding two popular ways to get a tax break on medical expenses

At first glance, health savings accounts (HSAs) and flexible spending accounts (FSAs) seem quite similar. They both offer ways to pay for a portion of your — or your family’s — medical expenses with pretax dollars. And in both cases, you make tax-deductible contributions to an account and then draw from it to pay for certain eligible medical expenses.

But the two accounts have many differences worth paying attention to. Here’s what you need to know.

	HSA	FSA
Who’s eligible	Anyone enrolled in a qualifying high-deductible health plan (HDHP) who has no other coverage	Anyone with health insurance through an employer
Who owns the account	Employee	Employer
Who’s covered	You, your spouse, dependents and children under 27	You, your spouse, dependents and children under 27
What you can use it for	Current healthcare expenses Healthcare expenses in retirement	Current healthcare expenses
What’s covered	Qualified health expenses as defined by the IRS Insulin Prescription drugs and prescribed OTC drugs Premiums for long-term care insurance and COBRA coverage	Qualified health expenses as defined by the IRS Insulin Prescription drugs and prescribed OTC drugs
Withdrawals for non-medical expenses	If you’re under age 65, you pay income taxes and a 20% penalty on the withdrawal If you’re age 65 or over, you pay income taxes on the withdrawal	Not allowed
How to use it	Pay for the expense with your HSA debit card or Pay out of pocket and reimburse yourself later	Make a claim through your employer for reimbursement; you’ll need proof of both the expense and the fact that your insurance didn’t cover it
Use-it-or-lose-it provision	None; your HSA assets roll over from year to year	In general, you lose any unspent funds at the end of the year Some FSAs let you roll over $500 into the next year Others give you 2½ months into the next year to spend your balance¹
Ability to invest	Yes; many HSA providers allow consumers to invest in mutual funds	No
Ability to save for healthcare costs in retirement	Yes; HSA savers can hold their investments indefinitely	No
2021 contribution limits	$3,600 for individuals in an HDHP $7,200 for a family HDHP Enrollees who are age 55 or older can contribute an additional $1,000	$2,750