Health care coverage changes every year. As insurance companies change what services their policies cover, they also change what they don’t cover. Flexible spending accounts and health savings accounts help pay for medical expenses that insurance doesn’t cover. But what to do when faced with a flexible spending account vs a health savings account? You need to know which accounts make sense for you and your family. This involves understanding how these accounts work and whether maintaining both accounts simultaneously is allowed.
FSA and HSA at the Same Time?
As long as you meet the requirements to keep both accounts open, you can do this, but with a big caveat. If your employer offers the FSA option, and you choose insurance with an HSA, your options to have the flexible spending account are limited. As far as medical expenses go, you can only use the FSA money for vision and dental expenses. You can also enroll in a Dependent Care FSA, to offset child care or elderly parent care costs. You will want to make sure you use most, if not all, your pre-tax FSA money, or you will lose it at the end of the year. To maintain an HSA, you must be enrolled in a high-deductible insurance plan. You may not be enrolled in Medicare and you may not be claimed as a dependent by another taxpayer. So consider how you will use the funds.
Families on the same insurance policy must consider whether to go with a flex spending account or HSA. As with an individual, if a family has an HSA, and one family member opens up an FSA, the flex spending account can only be used for vision and dental expenses or dependent care.
Flexible Spending Account
You must open a flexible spending account, or FSA, through your employer. It allows you to contribute money from each paycheck into a special account. You can use this money to pay for medical expenses throughout the year, or for dependent care expenses. When you enroll in your company’s benefit plan, you determine how much you want to invest in the FSA. Your employer then divides that amount into equal deductions from each paycheck. The money you contribute to the FSA is tax-deductible and saves you money when you file your tax return.
Health Savings Account
A health savings account, or HSA, does not necessarily have to come through your employer. It may be offered by your insurer. To qualify to open an HSA, you must enroll in a high-deductible health insurance plan. These plans require you to pay a higher deductible than traditional insurance plans before receiving any insurance benefits. It gives you the ability to contribute money into a special savings account. The money in this account should be used to pay medical expenses. Some employers also contribute to these accounts on behalf of employees. As with an FSA, your contributions are tax-deductible and reduce the money you owe on your taxes.
Differences: HSA vs FSA
There are two significant differences when considering flex spending vs an HSA. One is what happens to the money at the end of the year. While you pay into the plans all year, you may or may not get to keep the money that’s left over. With an FSA, some or all of the money not spent during the year may be lost. Lost FSA money helps pay administrative costs or becomes income for the plan. So don't leave any money in your FSA account, unless your employer lets you roll over $500 of the FSA money. Some employers give you until March 31 of the next year to spend all your FSA money. With an HSA, the account remains open and the money always belongs to you. There is no deadline on when the money is spent. There is another difference in HSA vs FSA. This involves when you can use the money. With an FSA, the total dollar contribution for the year is known and you can use that money at any time, even if you haven’t paid it all in yet. With an HSA, you cannot use the money until you’ve contributed it to the account.