| Aspect | Health Savings Account (HSA) | Flexible Spending Account (FSA) |
|---|---|---|
| Ownership | Owned by the individual. | Owned by the employer (although funds are for employee use). |
| Eligibility | Requires enrollment in a high-deductible health plan (HDHP). | Available to employees through employer-sponsored benefit plans, often with no requirement for a specific health plan. |
| Contribution Limits (2022) | $3,650 for individuals, $7,300 for families. Additional catch-up contributions allowed for individuals 55 and older. | $2,850 for health FSAs. Employer contributions may vary. |
| Rollover of Funds | Funds roll over from year to year and are not forfeited at the end of the year. | Limited rollover (up to $550) or a grace period for spending unused funds. Excess funds beyond rollover or grace period are forfeited. |
| Investment Opportunities | Typically offers investment options, allowing individuals to invest contributions in a range of financial instruments, such as mutual funds. | Generally, funds are held in an account managed by the employer, and investment options may be limited. |
| Withdrawals for Non-Medical Expenses | Allowed after age 65 without penalty (subject to income tax) for non-medical expenses. | Subject to income tax and an additional penalty if withdrawn for non-medical expenses before age 65. |
| Portability | Portable, remains with the individual even if changing employers or health plans. | Typically non-portable, and funds are forfeited if an employee leaves the employer. |
| Use for Qualified Expenses | Funds can be used for qualified medical expenses, including deductibles, co-payments, prescriptions, and certain over-the-counter items. | Funds can be used for qualified medical expenses, including deductibles, co-payments, prescriptions, and certain over-the-counter items. |
| Employer Contributions | Employers, employees, or both can contribute. Employer contributions are often used to incentivize employees to choose high-deductible health plans. | Employers may contribute to employees' FSAs, but it is not mandatory. |
| Tax Advantages | Contributions are tax-deductible, and qualified withdrawals for medical expenses are tax-free. | Contributions are made with pre-tax dollars, reducing taxable income for the year in which contributions are made. |
| Emergency Fund Component | Can function as a long-term savings vehicle for healthcare expenses and may serve as an emergency fund. | Primarily focused on covering healthcare expenses during the plan year, with limited rollover or grace period for unused funds. |
| Flexibility in Contributions | Individuals can adjust contributions throughout the year, up to the annual limit. | Generally, contributions are set during open enrollment or when qualifying life events occur. Adjustments during the year may be limited. |
In summary, both Health Savings Accounts (HSAs) and Flexible Spending Accounts (FSAs) offer tax advantages for qualified medical expenses, but they differ in ownership, eligibility, contribution limits, rollover rules, investment options, withdrawal penalties, portability, and flexibility in contributions. HSAs are more portable and may serve as a long-term savings vehicle, while FSAs are typically employer-owned and have more restrictions on fund rollover.