FSAs vs. HSAs: Which gets your vote this Election Day?

Let's see which "candidate" - an FSA or HSA - is best for you this election season:

Flexible Spending Accounts (FSA) : FSAs let employees set aside pre-tax money from their paychecks to spend on out-of-pocket healthcare expenses, including co-pays, deductibles and qualifying products/services with a medical purpose.

FSA Basics

  • Money that goes into an FSA is pre-tax, which can save as much as 40 percent of each dollar spent on qualified health costs.
  • Employees can withdraw funds from the FSA to pay for qualified medical expenses from day one of the plan year
  • FSAs can help individuals/families budget more effectively by covering co-payments, over-the-counter medications, and more.

Things to keep in mind:

  • FSA allocations are increasing to$2,600 for individuals and $5,200, if you and your spouse have separate FSAs.
  • FSA holders should be mindful of their deadlines and plan restrictions. Employers have the option of offering a 2.5 month grace period or an optional $500 rollover. FSA users must be mindful of these restrictions to avoid losing money.

Health Savings Accounts (HSA) : HSAs allow qualified individuals to set aside pre-tax money to pay for qualified medical expenses. Money contributed to an HSA is exempt from federal income tax, FICA and state income taxes (for most states). Money in an HSA acts similar to a savings account; it stays there until you use it, and most accounts even earn interest on the savings.

HSA Basics

  • HSAs do not have deadlines that users have to adhere to, as they roll over from year to year.
  • Contributions can be made pre-tax through payroll deposits, as well as tax-deductible allocations by contributing money that has already been taxed.
  • HSAs are portable from job to job
  • HSA funds will remain available for future qualified medical expenses even if you change health insurance plans or retire.

Things to Keep in Mind

  • Choosing a high-deductible health plan is necessary to enroll in an HSA. This may not be an option for some, as it costs more to meet the deductible.
  • HSAs carry significant tax penalties if funds are withdrawn before the account holder turns 65. If funds are withdrawn for non-qualified expenses before the age of 65, users will have to pay taxes on this amount in addition to a 20 percent tax penalty.
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