Both an HSA and an FSA let you set aside money before taxes to pay for medical costs — which means you keep more of your own money. They sound similar but work very differently.
Both an HSAA tax-advantaged account for medical costs, paired with a high-deductible plan. The money stays yours year to year. and an FSAAn employer account that lets you set aside pre-tax money for medical costs. Funds usually must be used within the plan year. let you set aside money before taxes to pay for medical costs — which means you keep more of your own money. They sound similar but work very differently.
HSA — Health Savings Account. A personal savings account you can open only if you have an HSA-eligible High-Deductible Health Plan (HDHP)A plan with a lower monthly premium but a higher deductible. It can be paired with an HSA.. Key features:
- Money goes in tax-free, grows tax-free, and comes out tax-free when used for qualified medical expenses — a rare triple tax break.
- The money is yours and rolls over forever. Leftover funds stay in the account year after year, even if you change jobs or plans.
- The IRS sets an annual contribution limit, and many employers chip in too.
FSA — Flexible Spending Account. An account offered through your employer; it does not require an HDHP. Key features:
- You decide how much to set aside for the year; the money is pulled from your paychecks before taxes.
- “Use it or lose it.” You generally must spend the money within the plan year. Some employers allow a small carryover or a short grace period, but don’t count on it.
- It’s tied to your job — leave the employer and you usually lose access.
A simple example
Say you set aside $1,000 pre-tax in either account and you’re in a 22% tax bracket. You’ve effectively avoided about $220 in taxes on money you were going to spend on care anyway. The difference is what happens to leftovers: an HSA keeps them for you; a typical FSA forfeits them.
Why this matters to you
If you have an HSA-eligible plan, an HSA is one of the most tax-efficient accounts available — and it doubles as a long-term savings tool for future medical costs. An FSA is still valuable, but because of “use it or lose it,” estimate your spending carefully so you don’t over-fund it.
Official rules: IRS Publication 969 — HSAs and Other Tax-Favored Health Plans and the HealthCare.gov glossary entries for HSA and FSA. The Consumer Financial Protection Bureau (CFPB) also publishes guidance on medical billing and consumer money decisions.