What Is a Health Savings Account?
A Health Savings Account, or HSA, is an account that offers individuals covered by high-deductible health plans a tax-advantaged means to save for qualified medical expenses. Within certain limits, funds contributed to the account are not subject to federal income taxes.
What Is an FSA?
A Flexible Spending Account, or FSA, is an account that you can put money into that you use to pay for certain out-of-pocket healthcare expenses. This money is put into the FSA account tax-free, which means you’ll save money on healthcare expenses you’d usually have to pay taxes on. You do not need a qualifying high-deductible health plan to contribute to a FSA.
FSA vs. HSA
FSAs and HSAs have similar properties, but an HSA allows contributions to rollover year after year, while FSAs are owned by your employer and are less flexible since unspent funds cannot be rolled over year after year. If you leave your job, you can take your HSA with you as opposed to an FSA, where you would lose any unused funds. HSA money can also be invested and grow tax-free, while FSA money cannot be invested.
What Are The Benefits of an HSA?
Health Savings Accounts can help lower your taxes, as employer contributions are excluded from your taxable income and individual contributions are tax-deductible within certain limits. Investment growth of the account is tax-free and qualified withdrawals for medical expenses are also tax-free, giving you another tax-free way to invest your money. Additionally, an HSA can help you pay for medical expenses that you would typically have to pay for out of pocket. Learn more about how to maximize your employee benefits here.
What Is The Downside of an HSA?
One downside of a Health Savings Account is that they generally require you to have a higher deductible health insurance plan. A deductible is the amount you will have to pay out of pocket for medical expenses before your insurance benefits kick in. If you have high annual medical expenses, you may have other health plan options that offer more cost savings than having a high-deductible health plan with a HSA.
Can You Use an HSA For Investing?
Health Savings Accounts can be invested similarly to an IRA or a brokerage account. Money in your HSA can remain invested and does not need to be used in the year the contributions were made. Funds can be withdrawn for any purpose after age 65 and will be taxed at your ordinary tax rate with no penalties. This is a great way to better fund your retirement or future medical care. Learn more about how to use your HSA when starting a family.