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Which savings plan is right for me?

person putting money in savings jar

In managing your healthcare expenses and saving for the future, two popular options often come into play: Health Savings Accounts (HSAs) and Flexible Spending Accounts (FSAs). While both offer tax advantages for covering medical costs, some key differences can impact your financial strategy. Comparing and contrasting HSAs and FSAs can help you determine which savings plan is right for you.

Health Savings Accounts (HSAs):

An HSA is a tax-advantaged savings account that individuals can use to cover qualified medical expenses, provided they are enrolled in a high-deductible health plan (HDHP).

  • Eligibility: To open an HSA, you must be enrolled in a high-deductible health plan (HDHP). This means your health insurance plan has a higher deductible but generally lower premiums. You cannot be covered by other health insurance, including Medicare, and you cannot be claimed as a dependent on someone else’s tax return.
  • Contribution Limits: In 2023, individuals can contribute up to $3,650 to their HSA, while families can contribute up to $7,300. If you’re 55 or older, you can make an additional catch-up contribution of $1,000. Contributions are tax-deductible, meaning they reduce your taxable income.
  • Tax Benefits: HSA contributions, investment earnings, and withdrawals for qualified medical expenses are all tax-free. If you invest your HSA funds, any earnings on those investments are also tax-free.
  • Portability: Your HSA is entirely portable, meaning it’s not tied to your employer. You can keep it even if you change jobs or retire.
  • Rollover: Unlike FSAs, HSA funds roll over from year to year. There’s no “use it or lose it” rule.

Flexible Spending Accounts (FSAs):

An FSA is a pre-tax savings account that allows you to set aside money for qualified medical expenses, typically offered by employers as a workplace benefit.

  • Eligibility: Most employers offer FSAs to their employees, but eligibility can vary. Check with your employer to confirm your FSA options.
  • Contribution Limits: In 2023, you can contribute up to $2,850 to your FSA. These contributions are also tax-deductible.
  • Tax Benefits: Contributions to your FSA are tax-free, reducing your taxable income. Withdrawals are tax-free if used for qualified medical expenses.
  • “Use It or Lose It” Rule: One notable difference with FSAs is the “use it or lose it” rule. Any unused funds in your FSA at the end of the plan year typically do not roll over. However, some employers offer a grace period or allow you to carry over a limited amount.

Choosing Between HSA and FSA

So, which savings plan is right for you? The answer depends on your individual circumstances and financial goals.

Choose an HSA if:

  • You’re enrolled in a high-deductible health plan.
  • You want to maximize your contributions for tax benefits.
  • You prefer a long-term savings approach, as HSAs are highly portable, and funds roll over from year to year.
  • You’re looking for investment opportunities within your healthcare savings.

Choose an FSA if:

  • Your employer offers it, and you’re not eligible for an HSA.
  • You want to set aside a specific amount for expected medical expenses within the plan year.
  • You’re comfortable with the “use it or lose it” rule, or your employer offers carryover or a grace period.
  • You want to reduce your taxable income but don’t need the long-term savings aspect of an HSA.


In some cases, individuals choose to have both an HSA and an FSA, using the HSA for long-term savings and investments and the FSA for immediate healthcare expenses. This can be a strategic way to maximize both short-term and long-term savings while benefiting from tax advantages.

Ultimately, the choice between an HSA and an FSA depends on your unique financial situation and healthcare needs. Consulting with one of our benefits specialists in your area can help you make the right decision to optimize your healthcare savings and minimize your tax liability.

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