The downside is the HDHP required.įSAs can be advantageous to those who don't plan on switching jobs and are savvy with what they spend their FSA funds on, so they don't lose them. Overall, HSAs are more flexible and key benefits include rollover potential, portability and self-employed eligibility. However, neither account usually incurs penalties as long as you spend the money on eligible expenses. With an HSA, if you use your funds for nonmedical expenses prior to age 65, you must declare that money on your income tax form for the year, and it's subject to a penalty. One other big benefit to keep in mind: With an FSA, the amount you declare is available to you at the first of the year, and you pay for it through each paycheck throughout the year - as opposed to an HSA, which you contribute small amounts to with each paycheck so the balance grows over time. Funds used for eligible medical expenses don't incur taxes.You can contribute to your FSA using your gross pay, which means the contributions are tax-free.Withdrawals can be made for child care expenses as well as medical expenses.Some other things to keep in mind about FSAs: FSAs aren't portable like HSAs, so you forfeit your accrual when you change jobs FSAs don't earn interest and self-employed individuals aren't eligible for an FSA. If you declined to open an FSA during open enrollment, you'll likely have to wait until the next open enrollment to do so. Also, $500 isn't much compared with the maximum annual contribution of $2,700, so it's still better to use up your funds.Īlso unlike an HSA, you must declare your contribution amount each calendar year, and once you make that declaration, you generally can't change it until the next year. Instead, FSAs can be used with any health care plan and most employers offer them as part of a benefits package.Ī new carryover rule allows employers to choose whether employees can carry $500 from their FSA into the next calendar year, but not all employers offer this. For one, you don't need an HDHP to open an FSA. What is a Flexible Spending Account (FSA)?įlexible Spending Accounts, also called Flexible Spending Arrangements, are similar to HSAs, but there are a few key differences. In general, you'll save enough with an HSA to compensate for the HDHP, even if you do end up with a high deductible event one day. Self-employed individuals can contribute to an HSA.HSAs are portable accounts, so you get to keep your money even if you switch employers.You're not limited to the yearly contribution: If you don't have high medical or out-of-pocket medical expenses now, you can use more later if, say, you need surgery.Withdrawing money for qualified medical expenses is tax-free.There's long-term savings potential: If you don't spend your HSA funds on medical costs, they keep accumulating. If you're worried about the deductible cost with an HDHP, consider these key HSA benefits that can help offset it: Related: 6 at-home medical exams that could save your life
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