Understanding HSAs and FSAs
What is an HSA (Health Savings Account)?
- Eligibility:
- Must have a high-deductible health plan (HDHP).
- HDHPs have deductibles of at least $1,400 (individuals) or $2,800 (families).
- Cannot have other disqualifying health coverage.
- Key Features:
- Portable: You can take it with you if you change jobs.
- Rollovers: Unused funds carry over year to year.
- Earns Interest: Funds can grow through interest or investments.
- Withdrawals: You can withdraw for non-medical expenses but will pay taxes and penalties.
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What is an FSA (Flexible Spending Account)?
- Eligibility:
- Offered by your employer (you must qualify through your job).
- Not available for self-employed individuals.
- Key Features:
- Employer-Linked: Stays with the employer and does not transfer if you change jobs.
- “Use It or Lose It”: Money must usually be spent within the plan year. Some employers offer a grace period or let you carry over a small amount.
- No Interest: Funds do not earn interest or grow.
What Do HSAs and FSAs Cover?
- Eligible expenses include:
- Medical, dental, and vision care.
- Diagnosing, treating, or preventing diseases.
- Treatments for any body part or function.
Differences Between HSAs and FSAs
- Contribution Limits:
- The IRS sets yearly limits for how much you can contribute to each account.
- Growth:
- HSAs can grow over time (through interest or investments).
- FSAs do not grow and must be used within the plan rules.
- Withdrawals:
- HSAs allow withdrawals for non-qualifying expenses (taxes and penalties apply).
- FSAs do not allow withdrawals for non-qualifying expenses.
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Understanding HSAs and FSAs What is an HSA (Health Savings Account)? Eligibility: Must have a high-deductible health plan (HDHP). HDHPs have deductibles of at least $1,400 (individuals) or $2,800...