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HSA, FSA…What Does All That Mean?

Even though they may sound like the same thing, they’re very different.

Nov 16, 2010

Every year when it’s time to look at your benefits, the question of whether or not you should put money aside in a Health Savings Account (HSA) or Flex Spending Account (FSA) comes up. Even though they may sound like the same thing, they’re very different. It’s best to understand what each account offers before making your decision.

Whether you choose a Health Savings Account or Flex Spending Account, both will save you money on taxes. Money that you put into either account is pre-taxed like a line item on your income. So similar to putting money away in a 401K, you save based on your taxes. The money that is set aside in either a HSA or FSA is considered a 100% write-off against your adjusted gross income.

Here are the differences between the two:

Health Savings Account

To have an HSA, you need to be on a high-deductible health insurance plan. The Government limits how much you can contribute into the account as a single person or a family. Some of the advantages of an HAS include:

  • Your money rolls over from year to year.
  • Contributions will be reinvested and you can earn interest just like a regular savings account.
  • Your allocated amount is earned over the span of the year. If you opted to save $1000 for the year, it would divide the amount throughout 26 paychecks in order to receive the full amount.
  • Your savings account can move with you from job to job.

Flex Spending Account

Your employer needs to provide an FSA option.

  • You can use the entire amount immediately. If your health care plan changes on Jan. 1 and you chose to put $2000 into your FSA account for surgery, you can get the surgery on Jan. 1 and be reimbursed immediately, unlike an HSA account.
  • It’s a use it or lose it type account. You will lose any unused funds at the end of the year.
  • Cold medication, bandages, and any other type of expenses can be reimbursed with an FSA.

It is good to consider putting money in an HSA or FSA. You can pay for dental and vision needs like teeth cleanings, glasses, contacts, and even Lasik. Your employer may even contribute or match your investment.

The limits and rules for an FSA or HSA can change each year depending on Government changes. Learn more here.

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