Healthcare Accounts

HSA vs. FSA

Open enrollment decision? Compare the "triple tax advantage" of the HSA against the immediate availability of the FSA.

HSA

Health Savings Account
Rollover Yes, forever
Investable Yes
EligibilityHDHP Required
Fund AccessAs deposited
VS

FSA

Flexible Spending Account
Rollover Use it or lose it*
Investable No
EligibilityAny health plan
Fund AccessFull amount Day 1

The HSA "Triple Tax Advantage"

The Health Savings Account is arguably the most powerful investment vehicle in the US tax code. It is the only account that offers a triple tax advantage:

  1. Tax-Free Contributions: Money goes in tax-free (deductible).
  2. Tax-Free Growth: You can invest the funds, and capital gains/dividends are not taxed.
  3. Tax-Free Withdrawals: Money comes out tax-free when used for qualified medical expenses.

Bonus: At age 65, you can withdraw funds for NON-medical expenses without penalty (you just pay ordinary income tax, making it function exactly like a Traditional IRA).

The FSA "Day 1" Advantage

While the FSA lacks the investment power of the HSA, it has one major superpower: Immediate Availability.

If you elect to contribute $3,000 to your FSA for the year, you have access to the full $3,000 on January 1st, even though you haven't paid it all in through payroll deductions yet. This is incredible if you have an expensive surgery scheduled early in the year.

The "Use it or Lose it" Rule

FSA funds generally expire at the end of the year. Some employers offer a grace period (up to 2.5 months) or allow a small rollover (up to $640 in 2024), but any remaining balance is forfeited back to your employer.