HSA vs. FSA: What to Know
Health Savings Account (HSA)
An HSA is a type of savings account that helps pay for qualified medical expenses.
How HSAs Work
HSAs can help people save money on health care costs and get tax benefits. You must be enrolled in a high deductible health plan (HDHP) to open one. The money put into an HSA is not taxed and can be taken out tax-free, but only if it is used for qualified medical expenses. If there is money left in the HSA at the end of the year, it stays there for future use.
Benefits of an HSA
Tax-free Contributions
When you contribute money to your HSA, the funds are deducted from your pre-tax income, which means you don't pay any income tax on that money. Also, any interest or investment earnings on your HSA funds are tax-free.
Tax-free Withdrawals
When you withdraw money from your HSA to pay for qualified medical expenses, you also don't have to pay taxes on those withdrawals.
Unused Funds Accumulate Year Over Year
There is no "use it or lose it" rule for HSAs, and funds can accumulate year after year.
Funds for Qualified Medical Expenses
You can use HSA funds to pay for qualified medical expenses. Examples include prescriptions, medical supplies, copays, etc. To see the full list of approved items, check out the IRS Publication 969.
Eligibility Criteria
According to the Internal Revenue Service (IRS), to qualify for an HSA contribution, you must meet specific eligibility criteria:
- You must be covered under an HDHP.
- You can’t have other disqualifying health coverage.
- You can’t be enrolled in Medicare.
- You cannot be claimed as a dependent on someone else's tax return.
Limitations
Contribution Limits
According to the IRS, for 2026, individuals can contribute up to $4,400 to their HSA accounts, and families can contribute up to $8,750.
For 2027, individuals can contribute up to $4,500 to their HSA accounts, and families can contribute up to $9,000.
Plan Requirements
You must be enrolled in an HSA-eligible HDHP. These plans have an IRS-designed minimum deductible amount and a maximum amount for annual out-of-pocket expenses, which includes deductibles, co-payments, and other amounts, but not premiums.
For calendar year 2026, a plan is considered an HDHP if it has an annual deductible of at least $1,700 for self-only coverage or $3,400 for family coverage. The annual out-of-pocket expenses must not exceed $8,500 for self-only coverage and $17,000 for family coverage.
For calendar year 2027, a plan is considered an HDHP if it has an annual deductible of at least $1,750 for self-only coverage or $3,500 for family coverage. The annual out-of-pocket expenses must not exceed $8,700 for self-only coverage and $17,400 for family coverage.
Penalty for Non-Medical Withdrawals
If you withdraw funds from your HSA for non-medical expenses before age 65, you will be subject to a penalty. The penalty is equal to 20% of the amount withdrawn, and you will also have to pay income tax on the withdrawal.
After age 65, you can withdraw funds from your HSA for any reason without penalty, although you will still have to pay income tax on non-medical withdrawals.
Flexible Spending Account (FSA)
How FSAs Work
With an FSA, you can contribute a portion of your pre-tax salary into the account, reducing your taxable income. You must designate how much you want to contribute at the beginning of each plan year. Your employer may choose to also contribute to the plan.
You are able to access the maximum amount you choose to contribute for the year at any point during your coverage period, regardless of how much you have contributed so far.
Benefits of an FSA
Pre-tax Contributions
When you contribute money to your FSA, the funds are deducted from your pre-tax income, which means you don't pay any income tax on that money.
Tax-free Withdrawals
Funds used from your FSA to pay for qualified medical expenses are not taxed.
Eligible Expenses
Generally speaking, anything that your doctor prescribes can be covered by FSA funds. This includes hearing aids, eyeglasses, and chiropractors. To see the full list of approved items, check out the IRS Publication 502.
Eligibility Criteria
FSAs are generally available only through an employer-sponsored benefits program.
Limitations
Use it or lose it
FSAs typically have a use it or lose it rule, meaning any funds left at the end of the plan year may be forfeited.
However, employers can offer a grace period up to 2 1/2 months after the end of the plan year. Qualified expenses during this time can be paid from any balance left in the account at the end of the previous year.
Employers can also allow unused amounts at the end of the plan year to carry over into the following year's plan. For 2026, the maximum coverage amount is $680.
Employers cannot offer both a grace period and a carryover provision.
Contribution Limits
According to the IRS, the contribution limit through payroll deductions for 2026 for an FSA is $3,400.
Plan Requirements
The plan requirements for an FSA may vary depending on the employer and the specific plan.
Portability
An FSA is not portable, so you can’t take it with you if you change jobs.
Comparison of HSA versus FSA
Key Differences
Both HSA and FSA accounts are used to save money for qualified health care expenses, but they do have a few key differences:
Different tax benefits
HSAs can be invested, and earnings grow tax-free, whereas, with an FSA, funds are not typically invested.
Eligibility
HSAs are only available to those who are enrolled in an HDHP, whereas FSAs are available for different types of health insurance plans.
FSAs are offered through the workplace; thus, you can’t get an FSA unless your employer provides one.
Accumulation of funds
Unused funds can be accumulated over years in HSAs, whereas FSAs have a “use it or lose it” rule, unless your employer offers a grace period or carryover provision.
Portability
Unlike an HSA, an FSA is not portable, so you can’t take it with you if you change jobs.
Last updated: October 23, 2026
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