January 02, 2020

A Flexible Spending Account (FSA) or Health Savings Account (HSA) may be a good way for you to cover health-related costs - such as insurance deductibles, copayments and prescriptions - while saving on taxes. How do they work, and how do the two differ? Continue reading to see a basic rundown of FSA vs. HSA.


This account is only available through your employer, and you can have any medical plan with it. It functions like a pre-funded account in that you can access your entire contribution right away. Payments are deducted from your paychecks pre-tax during the entire plan year to pay for your FSA.

An FSA typically has lower contribution limitations - for 2020, it's $2,750. Usually, if you don't spend your FSA money during that calendar year, you lose it. However, if your employer has a rollover option, you may be able to roll over as much as $500 into the next plan year.


You don't need an employer to establish an HSA. However, to qualify for one, you must have a high-deductible health plan. That means paying more money up front for doctors' visits and prescriptions. If your HSA is through an employer, you can have your payments deducted pre-tax from your paycheck.

The maximum amounts you can contribute in 2020 are $3,500 for an individual and $7,000 for a family. If you don't end up spending much of your HSA funds on medical costs, that money could keep growing tax-free in your account.

Both accounts are dedicated to covering medical costs and have possible tax benefits. Since you can put aside money to pay these expenses pre-tax, that could be a good way to make the most of your money. The amount you save on taxes may be worth it, but it depends on your health and financial situations. As always, do careful research and weigh the advantages and disadvantages of each option.

For more on this subject, read:
- A flexible spending account cuts taxes
- How to Tell If an HSA Is Just What the Doctor Ordered
- HSA vs. FSA: Differences and How to Choose