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HSA vs. FSA: Which is right for you?

Key takeaways

  • HSAs and FSAs both help you save for qualified medical expenses.
  • HSAs may offer higher contribution limits and allow you to carry funds forward, but you're only eligible if you're enrolled in an HSA-eligible health plan.
  • FSAs have lower contribution limits and generally you can't carry over funds.

When choosing health benefits, many people wonder what the best way to save for health care costs may be for them. Should they opt for an HSA—or would an FSA be better? Or maybe even some combination of both?

Here's what you need to know about HSAs and FSAs, to help you decide which is right for you and your family.

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What are HSAs and FSAs?

Health savings accounts (HSAs) and flexible spending accounts (FSAs) both let you set aside money before it's been taxed to pay for health care costs. Any withdrawals are also tax-free, provided you use them to cover qualified medical expenses.1 This can help increase the money you have available to pay for medical bills.

For instance, someone in the 22% federal income tax bracket could potentially save nearly 30% in taxes (federal income + FICA + potentially state income) on every dollar contributed to an FSA or HSA via payroll deductions.

HSAs and FSAs are generally offered by employers as part of benefits packages, though you may be able to open an HSA on your own if you have an HSA-eligible health plan through work, spouse's employer, private insurance, or the insurance marketplace. In that case, you'd be able to deduct any HSA contributions you make from your annual tax return, though these contributions may not avoid Medicare and Social Security taxes.

FSA vs HSA: Key differences

Outside of the similarities, FSAs and HSAs differ in a few important ways:

You can carry over unused HSA funds HSAs allow you to carry money forward indefinitely, so your funds are there for you year after year. This can make things easier if you happen to contribute more than you're able to spend in a year—you won't have to rush to buy Band-Aids, or glasses before your money expires. But it's especially helpful in building savings to pay for large, future medical expenses, like those you anticipate having in retirement.

FSAs, meanwhile, are generally "use it or lose it." This means that when the new benefit year begins, you may forfeit whatever funds remain in the account from the prior year. Some employers may allow you to carry forward a small amount of your unused balance or can offer a grace period (normally up to 2.5 months). Check with yours to see if you can carry over a portion of your FSA at year end.

You can invest the money in your HSA Unlike with an FSA, you can potentially grow any money you have in your HSA by investing it. This lets you position your funds to benefit from compound interest. Combined with the ability to carry over funds from year to year, you may be able to build up a nest egg to pay for qualified medical expenses. According to the Fidelity Retiree Health Care Cost Estimate, an average retired couple age 65 in 2023 may need approximately $315,000 saved (after tax) to cover health care expenses in retirement. An average individual may need $157,500 saved (after tax) to cover health care expenses in retirement.2

You can decide how much or little you want to invest in your HSA. Some people invest all of the funds they hold; others prefer to save some—or all of their—cash for current expenses. It's your account, so it's your decision.

Whether you can open an FSA depends on your employer; HSAs are determined by your health insurance To be eligible for an HSA, you must be enrolled in an HSA-eligible high-deductible health plan and not have other disqualifying health coverage. Ask your benefits provider if you aren't sure which kind you have. FSAs, on the other hand, are employee benefits that anyone can contribute to as long as they are eligible and their employer offers them.

Can you have an HSA and FSA?

If you're contributing to an HSA, you can't fund just any type of FSA in the same year. You can have an HSA along with a limited purpose FSA, also known as an LPFSA. This type of FSA covers only those expenses not covered by your health plan, such as dental and vision care.

Note: This does not impact the ability to have a dependent care FSA.

You may be able to contribute more to an HSA than an FSA Both HSAs and FSAs have maximum annual amounts you can contribute, which the IRS determines each year. Employers can also determine FSA limits for their plans.

For 2023, the IRS contribution limits for health savings accounts (HSAs) are $3,850 for individual coverage and $7,750 for family coverage. For 2024, The IRS contribution limits for HSAs are $4,150 for individual coverage and $8,300 for family coverage. If you're 55 or older during the tax year, you may be able to make a catch-up contribution, up to $1,000 per year. Your spouse, if age 55 or older, could also make a catch-up contribution, but will need to open their own HSA. For FSAs in 2023, the maximum contribution is $3,050. This rises to $3,200 in 2024.

If your employer contributes to your HSA or FSA on your behalf, this may impact how much you can contribute. To find out more, check out our guide to HSA contribution limits.

Your HSA belongs to you, not your employer Even if you opened it through your company, your HSA (and everything inside of it) is yours forever—even if you leave your job. You can even use HSA funds to cover COBRA costs and health insurance premiums if you need to when you're unemployed. FSAs, however, are owned by your company, though you may contribute your own money to them. If you leave your job, you forfeit all funds in the account upon your departure.

You may have access to your FSA funds earlier in the year FSA funds are available to spend in their entirety at the beginning of your plan year. So if you decide to contribute $3,050 to your FSA in 2023, that entire amount is there for you to spend on the first day your benefits begin.

HSA contributions, on the other hand, accumulate only as you contribute. If you plan to save $3,050 over the year, you may only have access to half of that by the end of June, which may make it harder to cover significant expenses. However, HSAs let you reimburse yourself for any qualified medical expenses, which can make them effectively work the same way as FSAs.

For example, let's say you charge a $1,200 medical bill to your credit card because you don't have enough funds in your HSA. You can pay yourself back when your HSA balance grows enough to cover the cost.

At 65, you can treat an HSA like a traditional 401(k) or IRA To avoid a 20% penalty—plus any applicable taxes—you should only use money held in FSAs and HSAs for qualified medical expenses. But starting at 65, the 20% penalty is waived for HSAs, making them effectively like traditional 401(k)s or individual retirement accounts (IRAs). If you choose to use HSA funds for ineligible expenses at age 65 or older, you will still owe any applicable income taxes on what you take out.

Major differences between HSAs and FSAs HSA FSA
You can spend the money on qualified medical expenses. Yes Yes
100% of your unused funds carry over year to year. Yes  
You can invest the money for potential tax-free growth. Yes  
Your contributions may be pretax. Yes Yes
Your contributions may be tax-deductible. Yes  
Your account belongs to you, not your employer. Yes  
You can contribute more for a family than an individual. Yes  
100% of your elected amount is available on day one.   Yes
You must have an HSA-eligible health plan as your only health insurance. Yes  
You must be enrolled in the plan through your employer.   Yes
You can use the funds for qualified medical expenses in retirement. Yes  

HSA vs. FSA: Which is better?

If you're eligible for both an HSA and FSA, be sure to carefully weigh each option, considering the pros and cons we've outlined above. The choice of FSA vs. HSA (or HSA plus limited purpose FSA) comes down to your personal financial situation as well as your and your family's health.

And if you don't have a choice between FSAs and HSAs due to your health plan or company's offerings, don't worry about which account may be optimal. Both HSAs and FSAs are great options for saving money to pay for qualified medical expenses.

Consider a health savings account (HSA)

With an HSA, you can pay for qualified medical expenses in a tax-advantaged way.

More to explore

1. With respect to federal taxation only. Contributions, investment earnings, and distributions may or may not be subject to state taxation. 2.

Estimate based on individuals retiring in 2023, 65-years-old, with life expectancies that align with Society of Actuaries' RP-2014 Healthy Annuitant rates projected with Mortality Improvements Scale MP-2020 as of 2022. Actual assets needed may be more or less depending on actual health status, area of residence, and longevity. Estimate is net of taxes. The Fidelity Retiree Health Care Cost Estimate assumes individuals do not have employer-provided retiree health care coverage, but do qualify for the federal government’s insurance program, original Medicare. The calculation takes into account Medicare Part B base premiums and cost-sharing provisions (such as deductibles and coinsurance) associated with Medicare Part A and Part B (inpatient and outpatient medical insurance). It also considers Medicare Part D (prescription drug coverage) premiums and out-of-pocket costs, as well as certain services excluded by original Medicare. The estimate does not include other health-related expenses, such as over-the-counter medications, most dental services and long-term care.

This information is intended to be educational and is not tailored to the investment needs of any specific investor.

Keep in mind that investing involves risk. The value of your investment will fluctuate over time, and you may gain or lose money.

The information provided herein is general in nature. It is not intended, nor should it be construed, as legal or tax advice. Because the administration of an HSA is a taxpayer responsibility, you are strongly encouraged to consult your tax advisor before opening an HSA. You are also encouraged to review information available from the Internal Revenue Service (IRS) for taxpayers, which can be found on the IRS website at You can find IRS Publication 969, Health Savings Accounts and Other Tax-Favored Health Plans, and IRS Publication 502, Medical and Dental Expenses, online, or you can call the IRS to request a copy of each at 800-829-3676.

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