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Understanding the Difference Between a Health Savings Account (HSA) and a Flexible Spending Account (FSA)

November 19th, 2018 | Written by

daniel-frank-201417

It is important to understand the difference between a Health Savings Account (HSA) and a Flexible Spending Account (FSA). Choosing the right plan can maximize your health and tax benefits.  While a HSA and a FSA may achieve the same goal by reducing your taxable income and allowing you to pay for qualified medical expenses tax-free, they have different benefits and rules.

How do you know which plan is right for you? Consider asking yourself these questions:

  • What does your employer offer?
  • How close are you to retirement?
  • How much are your medical expenses each year?

Health Savings Account (HSA)

Flexible Spending Account (FSA)

Account Opening
  • Enroll into health insurance with HSA through your employer or privately as individual/family.
  • Enroll only if your employer established a plan.
  • Self-employed do not qualify.
Eligibility requirements

 

  • Must enroll into a high-deductible health plan (HDHP).
  • Must have a deductible of at least $1,350 for an individual or $2,700 for a family (2018/19).
  • Cannot be enrolled in Medicare.
  • No eligibility requirements.
Contribution limit for 2018 and 2019 only2018

  • Individual – $3,450
  • Family – $6,900
  • -Catch – up for age 55 or older – extra $1,000

2019

  • Individual – $3,500
  • Family – $7,000
  • Catch-up for age 55 or older – extra $1,000
2018

  • Individual – $2,650
  • Family – $6,750

2019

  • Individual – $2,700
  • Family – $6,800
Rollover
  • Unused balance automatically rolls over each year.

 

  • Use it or lose it
  • Some plans allow up to $500 to rollover.
  • Some plans offer a 2 ½ months grace period into the next year to use left-over balance.
Change Employers
  • You take your HSA with you
  • You will have to forfeit the plan.
Taxes
  • Contributions are tax-deductible
  • Earnings, such as dividends and interest are tax-exempt.
  • Distributions for qualifying medical expenses are tax-free.
  • Use it like an IRA – after age 65, you can take a distribution from HSA for non-medical reasons and there is no penalty. Like an IRA, you are subject to income taxes.
  • Contributions are tax-deductible.
  • Distributions for qualifying medical expenses are tax-free.
Investment Options
  • Investment options are available through different investment funds depending on the plan.
  • Interest is earned on the cash value.
  • Investing options are not available with a FSA and the funds do not earn interest.

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This information is not intended to be used as the only bases for investment decisions, nor should it be constructed as advice designed to meet your particular needs. You are advised to seek the advice of your financial advisor prior to making any decision based on any specific information contained herein.
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