HSA vs. FSA: Which Account Saves You More on Health Care

The core difference: HSA rolls over, FSA does not

A Health Savings Account (HSA) and a Flexible Spending Account (FSA) both let you set aside pre-tax money for medical expenses, but they work under different rules. The biggest difference is what happens to money you don't spend: FSA funds expire at the end of the year (with a small carryover option in some plans), while HSA funds roll over indefinitely and grow like a retirement account.

Both accounts reduce your taxable income dollar-for-dollar. If you contribute $2,000 to either account, you owe federal income tax on $2,000 less of your earnings. That's the main tax benefit. But an HSA also lets your money grow tax-free if you invest it, and you can withdraw it tax-free for medical expenses at any point in your life — even decades later. An FSA is simpler but riskier: you must predict your medical spending accurately, or you lose what you don't use.

Key Takeaways

• HSA funds roll over year to year and can be invested, while FSA funds expire annually and must be spent or forfeited (except for a limited carryover).
• You can only open an HSA if your health insurance plan is a high-deductible health plan (HDHP); FSA has no insurance requirement.
• HSA contributions are lower than FSA limits, but HSA money never expires, making it better for long-term savings.
• Both accounts let you pay for the same medical expenses with pre-tax money, including copays, deductibles, prescriptions, and dental work.
• If you leave your job, you keep HSA funds forever, but FSA funds stay with your employer's plan and may be forfeited.

Who can open each account

An HSA requires that your health insurance be a high-deductible health plan (HDHP). The IRS sets the minimum deductible each year — for 2024, it's $1,600 for individual coverage and $3,200 for family coverage. If your plan meets that threshold, you're may be able to access. You must also have no other health coverage (with narrow exceptions for dental, vision, and accident insurance), and you cannot be claimed as a dependent on someone else's tax return.

An FSA has no insurance requirement. Your employer simply has to offer one as part of their benefits package. You can have an FSA even if you have a low-deductible plan or are on a spouse's insurance. However, not all employers offer FSAs — they're more common at larger companies.

Contribution limits and what you can spend on

For 2024, you can contribute up to $4,150 to an FSA per year. HSA limits are higher: $4,150 for individual coverage and $8,300 for family coverage. However, HSA money that rolls over doesn't count against next year's limit, so over time an HSA can accumulate far more.

Both accounts cover the same expenses: copays, coinsurance, deductibles, prescription drugs, dental work, vision care, hearing aids, mental health treatment, and many over-the-counter items (though the rules on OTC products changed in 2020 — most now require a prescription or doctor's note). Neither account covers health insurance premiums, with one exception: HSA funds can pay for COBRA continuation coverage and long-term care insurance.

The IRS publishes a full list of covered expenses. If you're unsure whether something qualifies, your account administrator can tell you before you spend the money.

The use-it-or-lose-it rule and carryover options

FSA money that you don't spend by December 31 is forfeited — you lose it. This is the biggest risk of an FSA. However, many employers offer a grace period of up to 2.5 months into the next year to spend the previous year's balance, or they let you carry over up to $640 (in 2024) to the next year. Not all plans offer either option, so check your plan documents.

HSA money never expires. Whatever you contribute this year stays in your account forever, whether you spend it or not. You can let it sit, invest it in stocks or mutual funds, and withdraw it decades later. This makes HSA a genuine savings tool, not just a spending account.

Tax treatment and investment options

Both HSA and FSA contributions come out of your paycheck before federal income tax is calculated, so you save on income tax. Both also avoid payroll tax (Social Security and Medicare tax) on the contribution amount. That's roughly a 25 to 32 percent tax savings on every dollar you contribute, depending on your tax bracket.

An HSA goes further: if you don't spend the money, you can invest it in a brokerage account within your HSA. Many HSA providers offer mutual funds, index funds, and other investments. The earnings grow tax-free. When you withdraw money for a medical expense, both the contribution and the earnings come out tax-free. If you withdraw for a non-medical reason before age 65, you pay income tax plus a 20 percent penalty on the earnings (but not the contribution). After 65, you can withdraw for any reason and pay only income tax on earnings, like a traditional IRA.

An FSA typically does not offer investment options. Your money sits in a low-interest account, and you're expected to spend it within the year.

What happens when you change jobs or retire

HSA funds belong to you. If you leave your job, your HSA goes with you. You keep the money, keep the investment growth, and can continue to contribute if you're self-employed or have a new job with an HDHP. Your HSA is portable and permanent.

FSA funds are tied to your employer's plan. When you leave, you typically lose access to any unspent balance (though you may have a brief window to spend it under COBRA rules). Some employers allow you to continue an FSA through COBRA, but you must pay the full premium yourself, which is usually expensive. This is a major disadvantage of FSA if you're job-hunting or retiring before Medicare age.

Which account makes sense for you

Choose an HSA if you have access to an HDHP and expect to stay relatively healthy. The ability to roll over funds and invest them makes HSA a powerful long-term savings tool, especially if you can afford to pay medical expenses out of pocket and let the HSA grow. An HSA is also better if you change jobs frequently or plan to retire early, because the money is yours to keep.

Choose an FSA if your employer offers it and you have predictable medical expenses you know you'll incur within the year — ongoing prescriptions, regular therapy, planned dental work, or frequent vision care. FSA is simpler because there's no investment component and no long-term strategy required. However, only choose FSA if you're confident you can spend the money, or if your employer offers a carryover or grace period.

If you have access to both, you can open an HSA and an FSA at the same time, as long as your FSA is a dependent-care FSA (for childcare) rather than a medical FSA. A medical FSA and HSA cannot coexist in the same year.

Frequently Asked Questions

Can I use HSA and FSA money at the same time for the same expense?

No. You cannot pay for one medical expense with both accounts. If you use your FSA to pay for a prescription, you cannot also use your HSA for that same prescription. However, you can use FSA for one expense and HSA for another in the same year.

What happens to my HSA if I turn 65?

Your HSA remains yours. After 65, you can withdraw money for any reason without penalty, though you'll pay income tax on earnings (not contributions). Many people use HSA as a retirement account because of this flexibility. You can also continue to use it for medical expenses tax-free.

Can I withdraw FSA money for non-medical expenses?

No. FSA withdrawals must be for may have access to medical expenses only. If you withdraw for any other reason, you'll owe income tax and possibly penalties. This is why predicting your spending accurately is so important with an FSA.

Do I have to use my HSA every year, or can I just save it?

You don't have to use it. HSA is designed to let you save for future medical expenses. Many people contribute the maximum and spend only what they need, letting the rest grow. There's no requirement to spend a certain amount or lose the balance.

If my employer stops offering an FSA, what happens to my balance?

You typically have until the end of the plan year to spend your FSA balance. After that, any remaining funds are forfeited to the employer. Check your plan documents or ask your benefits administrator for the exact deadline in your situation.