Despite their similar acronyms, these two accounts are different—though both have to do with healthcare. (Not confusing at all, right?) Read on to learn the difference between an HSA and an FSA. “Both of them allow you to set aside money on a pre-tax basis,” straight from your paycheck, says Katie Waters, CFP, founder of Stable Waters Financial, a Georgia-based financial planning firm. By lowering your gross income through HSA or FSA contributions, you ultimately save money on taxes. HSAs and FSAs can be used for the same list of IRS-approved eligible medical expenses, ranging from office visits to transportation to and from appointments to healthcare supplies such as high-SPF sunscreen. (Your particular plan, provider, or employer may have different eligible expenses: Be sure to confirm that an expense is on the list before you buy.) HSAs are also only available to people with high deductible health plans (HDHPs): If your deductible is $1,400 or higher ($2,800 for families), you’re eligible for an HSA. Meanwhile, “FSAs are typically paired with lower-deductible health insurance plans,” Waters says. Anyone with a high deductible health plan can sign up for an HSA—some smart insurance apps even make it easier than ever to get an HSA—but they are often offered by employers if you have employer-provided healthcare. FSAs are almost exclusively offered by employers. HSAs are strictly limited to people with HDHPs; FSAs are generally associated with low-deductible plans. If you have a few options for healthcare from your employer, there’s likely to be at least one high-deductible plan, which may come with an HSA; there may be a low-deductible plan with an FSA. You won’t be able to pick a plan and then decide if you want an HSA or an FSA with it—that will be decided for you, based on the healthcare plan you pick. (The exception is limited-purpose or post-deductible FSAs, which operate differently.) Plus, “it’s not that one is better than the other,” Waters says. An HSA might sound like a great extra, tax-advantaged savings account, but it always comes with a high-deductible health plan. Waters says it’s a common mistake to think HSAs are better—and an easy one, because rolling over money year after year sounds much better than a use-it-or-lose-it policy—but HSAs can actually cost you more money if you choose a high-deductible plan for the HSA and end up paying more out-of-pocket for medical costs. If your medical expenses are consistently high, for example, chasing an HSA can actively hurt your finances. “Do not let the account you want pick the plan,” Waters says. Instead, pick a health plan that works for you and covers your needs: If it comes with an HSA or FSA, consider that an added bonus.
