H.S.A.s and F.S.A.s: What they are and How to use them

There are two kinds of accounts that can help you with medical expenses. These are Health Savings Accounts (H.S.A.) and Flexible Spending Accounts (F.S.A.). They work by allowing you to place and take money away from it before it can be taxed. These transactions are all tax-free, for as long as they are used for allotted medical purposes. These accounts are gotten through an employer, or through private insurance, or the insurance marketplace, as such you can contribute to them through payroll deductions. 

There are differences. H.S.A. funds can hold your contributions indefinitely, can grow through interest through compound interest, and are only available if you are enrolled in an H.S.A. eligible high deductible health plan. However, F.S.A.s generally require you to lose most, if not all, your contributions for the year. In addition, you can not invest with a Flexible Account. F.S.A. are always available to everyone for as long as your employer offers them. The IRS limits the amount you can contribute to these accounts. For H.S.A.s, the limit is typically higher than for F.S.A.s. An H.S.A. is owned by the one who opens it forever even if it was through a company, while F.S.A.s are owned by a company. On the other hand you may access your F.S.A. funds since the beginning of the plan year, while an H.S.A. plan only lets have full access after a full year has passed. In addition, after 65 years of age, you may use the money for non-medical purposes, though you will have to pay taxes if you choose to do so. Now you may not have an F.S.A. if you already have an H.S.A., but you may have a Limited Purpose Flexible Spending Account. This covers services not covered by your health plan. 

Neither of these options are inherently better than the other. However, an H.S.A. may provide more versatility and allows you to invest in your futures. Meanwhile, if you need to prioritize the short-term and have more urgent needs, an F.S.A might just be more useful.

Works Cited

https://www.fidelity.com/learning-center/smart-money/hsa-vs-fsa