Which health savings plan is right for you?
While only a small percentage of Americans currently use these accounts, they can help reduce the stress and financial impact of paying for doctor visits, prescriptions, or unexpected medical expenses.
Now that you know a little more about each plan, which plan — HSA or FSA — should you add to your benefits arsenal?
The basics
Both HSAs and FSAs let you save pretax dollars to help cover qualified medical, dental, and vision expenses. The right choice depends on your health plan, spending needs, and long-term goals.
HSAs: Flexibility & long-term savings
HSAs are available for those in qualified high-deductible health plans. These plans offer more flexibility, as unused funds can roll over year over year and remain yours, even if you leave your job. You can also invest HSA funds, potentially growing your balance over time. This makes HSAs especially beneficial if you want to save for future medical costs, including expenses you could face in retirement. According to Fidelity, on average, 65-year-olds may need more than $170,000 in savings to cover healthcare costs in retirement.
After age 65, HSA funds can also function as a traditional retirement account. Withdrawals for nonmedical expenses are allowed without penalty (although income tax applies), while qualified medical expenses remain tax-free.
FSAs: Immediate access, short-term planning
FSAs don’t require a specific health plan, and you can access your full annual contribution at the start of the plan year. However, FSAs follow a “use it or lose it” rule, meaning unused funds at year-end are typically forfeited. FSAs are also employer-owned, meaning you typically lose access to remaining funds if you leave your job (unless you elect COBRA).
Which should you choose?
If you value long-term savings and investment options, an HSA is the best option. If your spending is more predictable and short-term, an FSA makes sense. Some employees could be eligible for an HSA paired with a limited-purpose FSA.
Both accounts are powerful tools for managing healthcare costs. The best choice depends on your personal finances, health needs, and benefit eligibility. Take time to review your options during open enrollment and make the best choice for you and your family.