Health care FSAs and HSAs let you save money for out-of-pocket medical expenses (basically the things your insurance doesn’t cover). Think of them as tax-free savings accounts for your well-being.
First, the basics:
You can use the money saved in HSAs and FSAs to pay for a range of health care expenses (chosen by the IRS), including:
You can’t use them to cover:
Not everyone is eligible for, or benefits from, an HSA or FSA. Here’s how they stack up:
|Annual contribution limits (2019)||$3,500 for anyone flying solo or $7,000 for a family||$2,700 per account no matter how large your family|
|When are the funds available to spend?||Like a bank account, you can only spend the money you’ve saved so far||You have access to your entire yearly planned contribution on January 1|
|When can you adjust contributions?||Anytime during the year (up to the annual cap)||Only at the start of each year (unless something major happens in your life, such as a birth, marriage, or divorce)|
|Do you lose the money if you don’t use it?||No, your money remains in the account for as long as you have it open, and there is no lifetime cap on savings||Mostly yes, but employers can choose to offer a grace period for spending or a $500 rollover from year to year|
|What happens if you leave your job?||You can generally take the account with you to a new job or keep it if you become self-employed||Unless your FSA meets certain exceptions, you typically can’t take it with you|
The benefits of these accounts are that they save you money, reduce your tax liability, and help you set aside funds for unexpected or large medical expenses. And if your HSA has an investment option, your savings can even grow tax free.
You generally can’t contribute to both account types in the same year. However, HSA holders may be eligible for a separate Limited Purpose FSA (specifically for dental and vision expenses), and both HSA and FSA holders might be able to set up a separate dependent care FSA for certain child care expenses.
And although you don’t owe taxes on your contributions if you withdraw the money for qualified expenses, you may owe taxes if you withdraw HSA money for non-health care expenses. In that case:
FSAs and HSAs have their own pros and cons. But if you’re eligible for either account, there’s a good chance you’re better off contributing than not.