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Do you have an FSA? An HSA? Is it possible you mix up the two? If so, you’re not alone. Lots of people confuse these accounts.
Both a flexible spending account (FSA) and a health savings account (HSA) are used to help you set aside funds for medical expenses and save money on taxes.
They share a few similarities, but it’s important to understand their key differences if you want to pick the right account for you.
HSA vs FSA: Similarities
An HSA and FSA are both tax-advantaged accounts that let you stash your own money away for future health care costs.
You can open an HSA or FSA at work if your employer offers them. Employers can also make contributions to these accounts.
If you open an account at work, your paycheck funds the HSA or FSA with pre-tax money. That means any money you deposit won’t get taxed for things like Social Security, Medicare or federal income tax.
HSAs and FSAs can be used to pay for qualified medical costs for yourself, your spouse or dependents. Eligible medical expenses can include deductibles, copayments, coinsurance, prescriptions and many over-the-counter medications.
You also won’t pay tax when you spend the money in your account on qualified medical expenses.
FSAs and HSAs are each subject to an annual contribution limit. Finally, both accounts let people aged 55 and older make an additional catch-up contribution of $1,000 per year.
HSA vs. FSA: Key Differences
HSAs and FSAs may sound similar — but they really don’t have much in common. Their differences outweigh their similarities.
Flexible Spending Account Features
You can only establish an FSA with your employer. This means your employer — not you — owns your FSA account. If you leave your job, you lose your FSA funds.
In 2022, the contribution limit for a health care FSA is $2,850.
Use It Or Lose It
The biggest drawback to an FSA is that the money in the account is “use it or lose it,” meaning you lose whatever money you don’t use up by…
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