Flexible Spending Arrangement (FSA) vs. Health Savings Accounts (HSA)

When it comes to setting aside pre-tax dollars for medical expenses through a workplace benefits program, it’s important to know whether you’re enrolled in a Flexible Spending Arrangement (FSA) or a Health Savings Account (HSA). Both accounts offer tax advantages for covering out-of-pocket medical costs, but the rules for using the money are very different and confusing the two could cost you.

The most important distinction is how long you have to use the funds. With an FSA, the general rule is “use it or lose it.” Money you set aside for the year usually must be spent by the plan’s deadline, or you risk forfeiting the balance. Some employers offer a short grace period (up to two and a half months after year-end) or allow a small amount to roll over, but these exceptions aren’t guaranteed, check your plan’s details carefully. In contrast, HSAs do not have any “use it or lose it” restriction. The money you contribute to an HSA remains yours year after year, rolling over indefinitely, and you keep the account even if you change jobs or retire.

It’s easy to underestimate the impact of these differences. Failing to spend down your FSA can mean leaving your own hard-earned, tax-advantaged dollars on the table, while an HSA can serve as a powerful tool for both current and future healthcare expenses.