Is it worth contributing to an HSA

What is the difference between HSA and FSA? - 2021 - INVEST

Trying to choose between a health care account (HSA) and a flexible spending regime (FSA) can be enough to cross your eyes. In some ways, they're very similar: they're both accounts that you can contribute tax-free to save on medical expenses. In other ways, they are very different, and with some key differences between HSAs and FSAs, it literally pays off to get this decision right.

In both the HSA and the FSAs, those with health insurance can raise funds for what is known as a "qualifying cost" for health care, including deductibles, co-payments and co-insurance, and monthly prescription costs. In some cases, employers also pay for these accounts. In most cases, you will be provided with a debit card for your account that will allow you to pay for qualifying expenses year round. Both types of accounts also have tax benefits, although these benefits are not the same.

In general, opting for an HSA or FSA is a wise decision. Knowing which one to choose and how to get the most of it takes some training.

Are you eligible for an HSA?

Health accounts are not available to everyone. This is the first crucial difference. If you are not eligible for an HSA, it will make your decision a lot easier. Only people who have a highly deductible health plan or HDHP can choose an HSA.

For 2018, an HDHP must have a deductible of $ 1,350 or more for one person or $ 2,700 or more for a family. These plans also limit the amount you can spend on insured benefits in a year, at $ 6,550 for one person and $ 13,100 for a family.

To qualify for an HSA, that HDHP must be your only health insurance, you cannot be eligible for Medicare, and you cannot be claimed as dependent on someone else's tax return. Not all deductible plans that exceed these limits are eligible for HSA. Therefore, it is important that you check with the insurer before buying.

Important differences between HSAs and FSAs

As you can see in the table below, there are some additional differences between these accounts. Things like your flexibility with donating, the ability to keep your untapped balance, and additional tax breaks make HSA the smartest choice when you have the option. However, each account means that you will save money and make budgeting for medical expenses easier.

Health Account (HSA)Flexible spending regulation (FSA)
Conditions of participationEligibility requirements include a Highly Deductible Health Plan (HDHP)No admission requirements
Contribution limit2018 contributions limited to US $ 3,450 for individuals and US $ 6,900 for families2018 contributions capped at $ 2,650
Change contribution amount You can change how much you contribute to an account at any time.Contribution amounts can only be adjusted if the registration is open or if there is a change in employment or family status.
To turn around Unused balances are carried over to the next year.With a few exceptions, FSAs are "use or lose" and you are discarding any unused credit.
Connection to the employer Your HSA can assist you with your change of employment.In most cases you will lose your FSA if you change jobs. One exception: if you are eligible for the continuation of the FSA through COBRA.
Effects on taxes Contributions are tax deductible, but can also be deducted from your pre-tax wages. Growth and dividends are tax-free.The contributions are before taxes and the distributions are untaxed.

You can't choose both unless ...

If you qualify for an HSA, you cannot opt ​​to establish an HSA and an FSA unless the FSA is a "limited purpose" FSA. Your recruiter can tell you if this is the case for your new job.

A limited-purpose FSA works like a regular FSA but can only be used for vision problems and dental expenses. If you expect high medical costs throughout the year or want to maximize contributions to your HSA while minimizing your payouts, then using a limited-use FSA for anticipated visual and dental costs could be a smart choice.

Which one should you choose?

Both accounts offer benefits that make it easier to manage your outstanding medical treatment costs throughout the year. However, you should opt for an HSA if you qualify, if the limit is not higher for any other reason and you can carry over your contributions from year to year. If you don't qualify, sign up for the FSA.

A good rule of thumb when considering how much to contribute: start with enough to cover your deductible, expected medication costs, expected doctor visits, and any planned treatments or surgeries. Also, don't be afraid to ask your HR representative if you run into any questions. You cannot be expected to know all the details of your new benefits.

Updated October 24, 2017.