| Tax-Advantaged Account Type | Flexible Spending Account (FSA) is an employer-sponsored benefit that allows employees to set aside pre-tax dollars for eligible medical expenses. | Health Savings Account (HSA) is a tax-advantaged savings account available to individuals with High Deductible Health Plans (HDHPs). |
| Ownership | Typically owned and funded by the employer, although employees contribute through pre-tax payroll deductions. | Owned and funded by the individual or their employer, with contributions often made through pre-tax payroll deductions or personal contributions. |
| Eligibility | Generally available to all employees, regardless of the type of health insurance plan they have (although some employers may have restrictions). | Requires enrollment in a High Deductible Health Plan (HDHP) to be eligible to open and contribute to an HSA. |
| Contribution Limits | Contribution limits are set annually by the IRS and can vary from year to year. In 2022, the annual limit is $2,750 for individuals. | Contribution limits are set annually by the IRS and can vary from year to year. In 2022, the annual limit is $3,650 for individuals and $7,300 for families. |
| Rollover of Funds | Generally, FSA funds must be used within the plan year, with a grace period or carryover option of up to $550 or a two-and-a-half-month grace period. | HSA funds roll over from year to year, with no "use it or lose it" rule. The account holder retains full control over the funds. |
| Withdrawals and Reimbursements | Allows for tax-free withdrawals for eligible medical expenses incurred by the account holder, their spouse, and dependents. | Permits tax-free withdrawals for eligible medical expenses for the account holder, their spouse, and dependents. Funds can also be used for non-medical purposes but are subject to taxes and penalties if not used for qualified medical expenses. |
| Portability | Typically not portable if the account holder changes employers, as the FSA is usually tied to the employer's plan. | Highly portable, and the account remains with the individual even if they change employers or insurance plans. |
| Investment Options | Limited investment options, if any, as FSAs are primarily designed for short-term, tax-advantaged spending on medical expenses. | HSAs offer investment options, and account holders can invest their contributions in various financial instruments like stocks, bonds, and mutual funds. |
| Account Use for Non-Medical Expenses | Generally not permitted, and any non-qualified withdrawals are subject to taxes and penalties. | Allows for non-medical expenses, but withdrawals for non-qualified expenses are subject to income tax and a 20% penalty if made before age 65 (with some exceptions). |
| Tax Treatment | Contributions are made with pre-tax dollars, and qualified withdrawals are tax-free. | Contributions are tax-deductible or made with pre-tax dollars, and qualified withdrawals are tax-free. If used for non-qualified expenses, withdrawals are subject to income tax and penalties. |
