What is an HSA?

A health savings account, often abbreviated to HSA, is a benefit that is offered in conjunction with a high-deductible health insurance plan. Your employer may offer an HSA, or if you’re self-employed, you may qualify for an HSA if you have a qualified high-deductible health plan.

This type of savings account is designed for use on covered healthcare expenses. You can contribute untaxed dollars to the account from your gross income.

The funds in an HSA can be used for a number of approved expenses, including:

• Medical care (e.g., doctor visits, hospital stays)

• Eyeglasses

• Contact lenses

• Chiropractic care

• Prescription drugs

• Certain over-the-counter drugs

• Physical therapy

• Speech therapy

When used for qualified medical and health expenses, withdrawals from an HSA are tax-exempt.

There are contribution limits to how much you can put into an HSA each year. For 2025, the current limit is $3,600 per individual and $7,200 per family. If you are 55 or older, you can put an additional $1,000 in the account per year.

A flexible spending account, or FSA, is another benefit that stores pre-tax money to spend on qualified healthcare expenses. Some employers also offer a dependent care FSA benefit, which allows parents or guardians to set aside pre-tax funds to spend on qualified dependent care expenses.

Funds in an HSA roll over from year to year, but the funds in your FSA must be spent within the plan year or the money is forfeited. Some plans offer a grace period to use the funds in an FSA. The current annual contribution limit for an FSA is $2,750.

An FSA is available through a group plan, such as a health plan offered by an employer, but is not available to self-employed individuals. The annual amount you allocate to your FSA will be available at the start of the plan year, and regular payroll deductions will cover the sum.

The employer providing the FSA technically owns the account, so if you leave your job before using all of the funds, you would not be able to take the money with you or move it to another account.

A key difference between an HSA and an FSA is the ability to roll over the funds in an HSA. HSA funds do not expire at the end of the plan year but can be maintained in the account indefinitely. If your HSA is offered through your employer, you get to keep the money because it’s your money that you have set aside from your payroll.

The first consideration when deciding between an FSA and HSA is whether you qualify for both. To have an HSA, you must be enrolled on a high-deductible health plan. If you aren’t on a qualifying plan, you wouldn’t be eligible for an HSA. Similarly, if you are self-employed, you wouldn’t qualify for an FSA.

If you do qualify for both, it helps to consider your typical healthcare expenses. If you require substantial medical care or are prescribed expensive drugs, it may make sense to choose an FSA as you’re likely to use all of the funds.

If you tend to be on the lower end of healthcare utilization, you might choose a high-deductible plan with an HSA. If you don’t use all the money in the account during the plan year, it rolls over to the next (and every year thereafter).

If you have questions about your health plan coverage options, talk to your health plan to get more information. Making an informed decision during open enrollment can help ensure that you have the coverage you need for the upcoming year.