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HSA vs. FSA: Which Savings Account is Right for You?

When it comes to healthcare savings accounts, two of the most popular options are Health Savings Accounts (HSAs) and Flexible Spending Accounts (FSAs). Both of them offer a way to save money on healthcare expenses, but there are some key differences between the two.

So, which one is right for you? Let’s take a closer look at HSAs and FSAs to help you make an informed decision.

Health Savings Accounts (HSAs)

HSAs are savings accounts that are specifically designed for healthcare expenses. They are available to individuals who are enrolled in high-deductible health plans (HDHPs), which are health insurance plans with a minimum deductible of $1,400 for individuals and $2,800 for families.

Contributions to HSAs are tax-deductible, and the money can be invested and grow tax-free. However, the amount you can contribute is limited each year. For 2021, the contribution limit for individuals is $3,600, and for families, it’s $7,200. If you’re over 55, you can contribute an additional $1,000 per year.

One of the biggest advantages of HSAs is that the money never expires. Unlike FSAs, which are “use it or lose it” accounts, the funds in an HSA roll over from year to year. This makes it a great option for someone who wants to save for future healthcare expenses, such as retiree health costs.

Flexible Spending Accounts (FSAs)

Like HSAs, FSAs are savings accounts for healthcare expenses. However, they are available to anyone who is offered a plan by their employer. You don’t need to have a high-deductible health plan to be eligible.

Contributions to FSAs are also tax-deductible, but there’s a catch. The money in an FSA must be used by the end of the plan year or you lose it. Some employers may offer a grace period or allow you to rollover a certain amount, but it’s best to check with your HR department.

Another important thing to note about FSAs is that the contribution limit is lower than an HSA. For 2021, the limit is $2,750 per year. This may be enough for someone with low healthcare costs, but it may not be sufficient for those with chronic conditions.

Which is Right for You?

When deciding between HSA vs. FSA, there are a few factors to consider. If you’re eligible for an HSA, it’s typically the better option. The tax benefits are greater, the contribution limits are higher, and the money doesn’t expire.

However, not everyone is eligible for an HSA. In that case, an FSA can still be a great tool to help you save money on healthcare expenses. Just make sure to use the funds before the plan year is up so you don’t lose them.

Ultimately, the right account for you depends on your personal circumstances. Consider your healthcare needs, tax situation, and eligibility for an HSA before making a decision.

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