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HSA vs FSA Comparison: 2019 Contribution Limits & Eligible Expenses

Rachel Carey
Financial Guru
Updated: 6/2019
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HSA vs FSA Which is BetterHealth savings accounts are a great alternative to lower deductible health insurance plans that don’t meet the needs of patients in the event of emergencies or ongoing health or prescription issues. Insurance law requires that the savings account associated with your health insurance plan is based on a high deductible health insurance plan. When combined with a qualified health insurance plan, you can invest in a tax-sheltered savings plan that allows for unforeseen medical expenses.

Table of Contents

Choosing a HSA Plan

When it comes to choosing an HSA plan, you need to look at the features that will provide the most benefit in your particular case. Whether you are an individual or a family member seeking health insurance for your family, think of an HSA as a supplemental plan that kicks in where your normal health insurance leaves off.

High deductible insurance plans have always been an alternative for people who do not need a lot of regular health care and want the lower monthly payment of high-deductible health insurance. But the downside to this is that it can take a long time to reach your deductible on such a plan. This means an out-of-pocket expense for patients who have not yet met their deductible. When you have a supplemental HSA account, you will be able to tap into this savings to address any extra expense that you might incur as you are trying to reach your deductible.

How to Open an HSA

If you need to open an HSA, you just need a qualifying health insurance plan. Health insurance is a necessary service that you need to avoid excessive health and medical expenses that can ensue from even a simple health problem or medical problem. Bills that start small may grow over time or if your condition continues to need attention. Pharmaceutical costs can skyrocket in a short time leaving you having to pay these costs out of your pocket.

HSAs offer you a way to have a tax advantage for any qualifying medical expenses and also to invest in investment opportunities that may produce a higher return.

Latest HSA Regulations

In 2018, IRS contribution limits were around $6,900 and $3,450 for individuals. HSA savings are FDIC-insured while most investments are not. Check your HSA plan and read the fine print to be sure your policy will do what you want it to do.

Healthcare costs continue to rise, and people must choose higher deductible plans to make ends meet. Still, you need to be able to cover the gap. That’s where an HSA comes in.

Which plan is best?

Since there are so many different HSA plans to choose from, we have provided information on the most popular ones below so that you can compare them and decide which is best for you.

HSA vs FSA Which is Better?

OUR TOP PICK

Lively

Why Lively?

  • Offers Free HSA Account for individuals
  • Insured by the FDIC
  • No hidden fees
  • Easy sign up process
Try Lively

Lively

Lively is a great option for anyone who needs an FDIC-insured HSA account that can come to the rescue when you need extra money. Lively is a free FDIC-insured account that protects your investment and allows you to keep your money safe with no hidden fees. You can start an account with Lively for only $2.50 per month, and you can sign up in just 5 minutes. Lively is free for the basic HSA, and you’ll gain interest from your average daily balance and interest rate with a .25% interest rate.

One of the best things about Lively is that there is no hidden fees and you’ll get three free debit cards with each additional card being only $5. There is a $2.50 monthly fee for TD Ameritrade investment accounts. You can withdraw this from your regular checking account. You can invest in stocks and bonds, CDs, and mutual funds to grow your financial portfolio.

Fidelity Investments

Fidelity is one of the more popular picks for HSM plans. They have some investment opportunities that other platforms do not have. They have an employer-sponsored 401k plan as well as HSAs through their company. Some of their best features are mentioned below:

  • Checkwriting
  • Electronic funds transfer
  • Online payments for medical expenses
  • Account management
  • Track and pay features

Fidelity is a good option for developing an HSA account if you need supplemental money to cover unexpected medical costs.

HSA Bank

HSA Bank focuses on HSA savings accounts, but you also have some nice investment options with HSA Bank, as well. Use your debit card or bill-pay system to maintain your HSA account. You don’t pay any fees with this account. All you need to remember is to pay $2.50 per month if you fail to maintain a balance of $5,000. There’s also a $3.00 per month investment fee. So the most you would pay is $5.50 per month if you don’t maintain the minimums.

Optum Bank

Another option for HSA accounts is a company known as Optum Bank. This is a technology-based financial facility that is associated with the UnitedHealth Group. If one of the major company employs you, you can sign up for this option with Optum Bank. Many of the major companies allow you to sign up for this plan through your place of employment. The monthly fee for this company is $2.75 per month, and there is no minimum balance to get started. Some of the best features of this plan are a debit and check card, online banking, and mobile apps.

As you can see, the Optum Bank account is an excellent choice if you want to invest while saving with your HSA account for out-of-pocket medical expenses.

To invest with Optum Bank, you need to meet the $2,000 investment threshold then check with your account manager to move your money as you need to to keep it current. Your money will be there anytime you need it.

One disadvantage to Optum Bank is that you do have to use their choice of investment funding options. You also have to go through their platform for all of your transactions so if you don’t like being tied to a specific platform or funding choice; you might want to shop around a bit more.

HSA vs FSA Which is Better?

Health Savings Administrators: Another Choice

Health Savings Administrators is an HSA provider that allows you to invest in many kinds of investments including Vanguard funds. They tend to charge more than others for their services. They charge $45 per year in fees plus a basic $6.25 fee per $1,000 each quarter. So this makes this company a bit more expensive when compared to other providers.

Healthy Equity

If you are looking for an HSA provider that offers you the best chance of investment, you’ll love Healthy Equity. There is a fee of $3.95 per month for this service for administrative fees. Plans can be set up by employers who qualify for this plan. Employers are the only ones who can set up this plan so don’t try to set one up yourself without going through your employer.

Further

There’s another HSA provider that allows you to invest. This one allows you to invest in Charles Schwab investments. Not only do you get a great option to get an HSA that you can depend on when you need it, but you also get to invest in Charles Schwab so there’s no reason why you cannot start right away saving and investing money. Fees for these plans are charged on an annual basis at the rate of $18 per year.

Elements Financial

This option is not as well-known as some of the other HSA accounts, but they are making more of a mark in the world lately. There is a free HSA option for maintaining at least a $2,500 minimum account balance. If you fall below this minimum, you’ll have to pay $4 per month for the service. You can put money into your investment account through the TD Ameritrade option. It has often been compared to the Lively app.

Saturna HSA

Saturna HSA has a unique fee structure for HSA owners that helps people compare the options to other similar programs and a “no fee” HSA. You need to make sure that you trade at least once per year to qualify for the free account fee structure. If you do not qualify for the commission-free investing, you will be charged $14.95 per trade. Saturna is a much more expensive option than the free account option so make sure to fulfill the requirements to qualify for the free account.

How to Choose the Best HSA for Your Needs

Think about the options for HSA accounts and look at the benefits of each one, you will want to consider the main advantages of each one and look into the HSA plan more than the investment options. The investment options are just meant to be a bonus to the HSA health plans that you can get in on by choosing a particular plan.

One way you can decide is to think about your budget and consider which ones offer more for your money regarding the health plan before considering the investment options. Think about whether you want to use your account primarily for spending or investing then choose your plan based on this.

Moving your HSA Plan to Another Location

One of the advantages of the HSA plans we’ve discussed is that it is a mobile plan. This means that you can move your plan from one provider or place of employment to another, rather than being stuck with only one location like is sometimes the case with these types of programs.

Investment Advice

We are not investment advisors, but when you are looking for sound advice regarding HSAs. The best advice we can give you regarding an HSA is to look into getting one. That’s because HSAs can save you a great deal of money when it comes to your health insurance needs. President Trump is working on a new plan that will allow people to have more competitive rates soon. But in the meantime, many people still have to get an insurance plan with an extremely highly deductible.

Higher deductibles mean your overall premiums go way down. For example, if you usually pay $300 per month for an insurance plan, taking out a high-deductible of around $5,000 may take your monthly payment down to approximately $150 or less. This is just a rough estimate and is not meant to be an estimate for everyone. But you can average out what your general monthly premium would be based on the amount of your deductible. Most high deductible health insurance plans show a chart where you can compare the primary deductible to other projects while comparing the average monthly premium with the individual deductible. This allows you to look at each one individually and decide which is the best bang for the buck before purchasing.

What about fees?

You may wonder how much you should consider the annual or monthly fees when thinking about which HSA plan to sign up for. This depends upon how much you plan on keeping in your account and whether your budget allows you to have enough to pay the monthly or annual fee. For some people, paying the fee is a minor inconvenience, and not everyone uses their HSA accounts for investment purposes. If you have other stock platforms or a portfolio that is not managed within your HSA account, you can just go ahead and pay the required fee if it does not cause too much inconvenience for you regarding your health insurance plan.

If, on the other hand, you like your HSA and the accompanying investment options well enough to keep the minimum amounts in your account, you can probably save yourself quite a lot of money by doing this.

With a spending HSA account, you can decide to spend as little money as possible out of your account each month so that you will have the minimum in your account at all times and avoid the fees.

Interest rates can vary with the plan you have chosen. If you invest in an interest-bearing account, you will earn a certain amount of interest each month that helps you make gains on your HSA investment. If you opt for an interest rate instead of investing in mutual funds, you will earn more money with this type of account.

One big advantage of using an interest-bearing option account is that you won’t have to invest in other aspects of the market such as market accounts or mutual funds to see a return on your investment. Instead, the money you make will happen naturally out of the interest-bearing account whenever you save money to your HSA account.

HSA vs FSA Which is Better?

What about debit cards?

Debit cards are an advantage you may not want to pass up because you’ll be able to use the debit card directly for doctor’s bills and medical expenses without having to take the money out of your account first or transferring it over to another account. Debit cards are convenient. Most HSAs allow you to have a debit card so make sure and ask when you sign up for an HSA account. As long as you use the debit card for health expenses, pharmaceutical drugs, and medical bills, you won’t be required to reimburse your account.

Investment Options

If you feel that the investment option aspect of an HSA is important to your financial planning, you need to choose an investment-focused HSA account. These plans are similar to IRAs (individual retirement accounts) because they focus on saving for your retirement and planning for the future. You’ll have different fees when you change from a savings-based HSA so keep this in mind.

Another indicator of a good, sound HSA is the performance history of the HSA. It’s important to take a look at the funds that back your HSA to see how well the investment agency has done in the past. Knowing the money will be there in the future, especially if it is an investment account, is an essential aspect of choosing an HSA for your health insurance.

One Stop Solutions?

For a one-stop solution with your HSA, you may want to look at all of these factors before choosing which HSA is for you. You need continuity of funding, as well as security and performance if you are going to invest some of your hard-earned money in an HSA account.

While the primary purpose of an HSA is not to build wealth, if you stick with a plan and choose a wise investment option HSA, you may discover that it has gained you quite a nest egg when you are ready to retire. Keep in mind that, like an IRA, you must keep as much money in your account as possible if you are going to make gains. Consistent savings each month is the key to success.

Spending vs. Savings HSAs

Spending and savings HSAs vary. If you are wanting to use your HSA for savings only and for applying it to your medical expenses to avoid paying out-of-pocket, you will want to go with the options that most help people focused on a savings-based plan.

If you are interested in using an HSA for an investment or retirement plan or as a supplemental savings option, you will want to choose one that is more likely to offer you a greater return over time.

Some of the best spending HSAs are listed below:

  • BMO Harris Health Savings Account
  • Affinity Credit Union HSA
  • First American Bank HSA

Some of the best investment HSAs are listed below:

  • Health Equity
  • The HSA Authority
  • Select Account

We thought the winner should be Select Account since it is convenient to use it for both a savings and an investment account. Some of these have a bank signup bonus too. You can check out the above HSA plans by searching online to get started. Keep in mind that the Select Account option was said by users to be just as helpful as a savings option as an investment option. So this might be more of a one-size-fits-all solution when looking for an HSA.

Using Multiple HSAs to Reach Your Goals

If you don’t find the perfect HSA account that will handle everything you need, you may want to choose to use more than one HSA and contribute up to the yearly maximum allowed by the IRS to contribute to your accounts.

One scenario is that you may estimate that your total health expenses are expected to reach around $3,000 in a given year. You know that the maximum investment you are allowed to contribute to your HSA is $6,900. One idea is to open two different HSAs. Contribute $3,000 first into the no-fee account and plan to use this one for spending (up to the $3,000 limit) and use the other account for investing. If you can put the other $3,900 into your investment-focused account, you can save the maximum $6,900 per year while distributing the amounts between a savings and an investment account without overspending or going over your allotted totals.

You’ll also be sure that you have enough to cover the basic medical expenses that you estimate each year while allowing you the flexibility to use one as an investment account.

The idea behind spending only from the first no-fee account is that you won’t have fees on money you are just going to pay. This frees up the other account to use it as an investment tool so that you’ll know you are taking care of your family’s future by contributing to your retirement fund.

Take a look at all of these options, think about where you are at with your retirement and HSA spending and then make your choice based on this criteria. With a little time and effort, you will learn more about different types of HSA plans and how to find the one that will give you the best benefit for your investment over time.

We hope these ideas and tips help you to start thinking about how an HSA can help you with your medical expenses so that you can focus on growing your financial future without cutting into the money you need for potentially expensive medical costs. It’s important to your future and your bank account. So that, no matter what the health industry does, you’re covered!

HSA vs FSA Which is Better?

Now that you have an in-depth understanding of what HSA is about, it is time to move onto FSA or flexible spending accounts. Just like the HSA, this is a type of account that enables you to make tax-free contributions in order to cut down on medical expenses. It has plenty of similarities with HSA so it can be confusing to those who are new to both types of accounts to choose the right one.

If you want to save on medical costs down the road, either of these two are good options. But in the purpose of helping you make an educated decision, it is important to take an in-depth look at FSA so you can weigh the pro’s and con’s (especially in comparison to HSA).

What is an FSA?

Paying for your health care needs is now easier with an FSA plan, also known as flexible spending accounts. This type of account is a tax-advantaged account that enables you to use your pre-tax money in order to pay for medical care expenses (for yourself or a dependent). It is up to you to determine the amount of money you put into your FSA account as part of your contributions. You will determine that amount at the start of each year and will be able to use it within that same year, in the event of medical needs.

There are certain limitations that entail your contribution and usage of the funds within your FSA account. Here is a basic overview for you to learn more:

  • As an employee, you must notify your employer about your expected out-of-pocket medical expenses for the upcoming year.
  • The employer will keep that stated amount and will deduct it evenly throughout your pay check for the upcoming year.
  • The employee will be the one to pay for your medical expenses on your behalf.
  • The employee will be reimbursed through your FSA account of the same amount that they withheld from your account to cover for medical expenses.

In addition to the overview above, there are also other things you need to know about using your FSA. You will be subject to certain legal limits such as the following:

  • Your use of FSA fund is eligible to use for a variety of purposes, such as doctor office copays, OTC items, prescriptions, health insurance deductibles, and more. You can even use your funds to cover for the medical expenses for your spouse and other tax dependents.
  • You will be issued with a payment card together with your FSA account. This will be used for making payments so you can get access to the funds within your account. You will be able to access your balance through an online account or via phone.
  • The FSA contributions are non-taxable so contributing to your FSA can lower your taxable income. You can therefore potentially make huge tax savings and still cover for your health expenses.
  • Even if you forget to bring your card during payments, you will be reimbursed for your cash payments. Simply fill up a claim form online in order to get the reimbursement via direct deposit or check.

There are also three classifications of flexible spending accounts (FSA): health, dependent care, and adoption. In terms of the health FSA, this is the annual estimated medical expense that you must declare to your employer at the start of the plan year. This amount will be divided into a 12-month period and will be deducted from your monthly salary accordingly. This means that you have access to the annual declared amount even if you haven’t paid your contributions in full. For instance, you have only contributed 3 months into your plan year. You can still qualify for the full amount set for that entire year to cover for any qualified medical expenses.

The Dependent Care FSA, on the other hand, works a little different. You can only enjoy the benefits to your FSA fund based on the amount that is then-current from the time you need to use it for any medical expense. In comparison to the scenario above, if you have contributed for only 3 months, you can only access funds equivalent to 3 months’ contribution. This fund can also be used only for dependent care expenses, meaning the expenses covered for the needs of caring for young children, elderly, or children with special needs.

Lastly, there is also a type of FSA offered by employers that is linked with the expenses of adopting one or more children. This is the least common form of FSA so it is best to ask your employer if they offer this kind of account.

FSA is now widely embraced by employers with data from Mercer Human Consulting survey showing about 80% of employers with 500 or more employees have offered FSAs. For employers with 10 or more employees, around 26% are currently offering FSA to their employees. To this day, there is an approximate number of 24 million FSAs.

How to Open Flexible Savings Account (FSA)

A flexible savings account is a type of savings account that can be used to save on medical expenses annually. It is a type of employee benefit that you can enjoy since the payment is deducted from your monthly salary. It is also one way to enjoy pre-tax savings on your health and medical expenses. Setting up an account is easy, especially if your employer offers FSA to its employees.

It is a form of election on the employee’s side if they want to enjoy the benefits of a tax-advantaged account for covering the medical and health care costs. There are no eligibility requirements for this type of account, as long as you are employed.

If you choose to apply for an FSA, you must identify which of the three types of FSAs you choose: healthcare, dependent, or adoption. Once that is determined, your employer will ask you to provide an estimate of your health care costs for the plan year. Based on that estimate, the amount will be divided into 12 months (for a full year). The quotient that you end up with will serve as your monthly contribution (in the form of salary deduction). You will also be provided a debit card (or payment card) that you can use for your purchases.

FSA Rules and Regulations

Aside from the general information and guidelines above relating to the contribution and use of your FSA account, there are some rules and regulations you need to know. Understanding these regulations will enable you to maximize the benefits you can get for contributing to FSA:

  • You must report all FSA purchases be included under the eligible expenses on your IRS report. Make sure to save your itemized receipts so you can track down all purchases made through the FSA payment card.
  • As of January 1, 2018, the FSA contributions had been capped to $2,650 per year by the IRS. This limit is applicable on a per-person basis only. This means that you and your spouse can each contribute to your FSA and the limit will apply for each person, not both.
  • The IRS also requires all employers to make available the full annual FSA election in the event of health or medical needs. This applies even when the individual or FSA account holder has not deposited the full amount during the time of use. To put it simply, if you have pledged an annual contribution of $1,200 on your FSA (or $100 per month), and you have only deposited $100 during the first month, you are eligible to have access to the full $1,200 as soon as needed.

How to Use Your FSA

The whole idea behind setting up a flexible spending account (FSA) is to make it easier to access and use your funds for health expenses. If you need to cover for health care or medical bills, there are two ways to access your FSA funds.

The first option is with the use of your payment card that is issued upon setting up your FSA. This is the most convenient method of accessing your FSA funds in order to enjoy the medical and health care services you need. You must present the card to the qualified physician or merchant. They will simply swipe your card and the corresponding amount for the consultation fee or prescription will be deducted from your FSA funds.

Another option is to pay via cash using your personal method. For any out-of-pocket expenses you make, you are qualified for reimbursement from your FSA account. An itemized receipt is required to qualify for reimbursement, though. Once you have your receipt, you can file a claim form online from your account. Once your reimbursement claim has been approved, the money you spent will be deposited back to your account or paid in check form. It is recommended that you set up direct deposit online in order to facilitate faster reimbursement.

During your visit to the doctor’s office or any hospital, you must present your health insurance card first. Most health care facilities or providers will allow you to co-pay (in the event that your insurance does not cover in full the amount required). When this is presented as an option, you can pay with your FSA payment card. Again, you can choose from any of the two options above but if you have your payment card, that will be more convenient.

HSA vs FSA Which is Better?

FSA Eligible Expenses

Not all types of health and medical expenses are covered or are eligible for the FSA payment. Make sure that you stay informed about these eligible expenses so you can maximize your use of your funds and to avoid paying more than you have to. Thankfully, there are hundreds of health and medical expenses that are eligible for tax-free purchase using your FSA funds. This can include prescriptions, professional fee, co-insurance, and health insurance deductibles. You will also find that many OTC or over-the-counter treatments are payable with your FSA funds.

A few examples of purchases or expenses that can qualify for FSA payment include the following:

  • Laboratory fees
  • Diagnostic services
  • Fertility treatment
  • Flu shot
  • Psychiatric care
  • Physical exam
  • Physical therapy
  • Surgery
  • Chiropractic care
  • Dental treatment and dentures
  • Eye examination
  • Orthodontia (not valid for cosmetic procedures)
  • Obstetrical expenses
  • Oxygen

The FSA can also be used to pay for other expenses such as the following:

  • Wheelchairs, crutches, and other similar medical equipment
  • Contact lenses (for non-cosmetic reasons)
  • Insulin and other supplies for diabetes
  • Hearing aids
  • Blood pressure monitoring devices
  • Artificial limb
  • OTC medications
  • Immunization
  • Oxygen

While there are hundreds of approved expenses that you can pay using your FSA funds, there are also a few items that are NOT eligible for tax-free purchases. The following are some of them:

  • Teeth whitening
  • Maternity clothing
  • Hair transplant
  • Exercise equipment or fitness programs
  • Cosmetic surgery or procedure
  • Insurance premiums

Given the list provided, you should have an idea on how and when you can maximize your FSA funds to reduce your medical expenses and enjoy tax benefits. It is important to note, however, that not all of these medical expenses automatically apply to your payment card, even the ones that are within the qualified expenses list. Some of these cases might require you to provide a letter from your doctor or healthcare provider stating that these medical equipment or drugs are medically necessary. It is also possible to have some of the expenses only partially covered, which means you will have to cover the remaining expense.

Tax Treatment of FSA

Employees who wish to apply for an FSA account (or flexible spending account) can make their contributions through monthly salary deduction. It is up to you and your employer’s agreement if they can contribute, as well.

One of the most talked about benefits of obtaining FSA to cover for medical expenses is the potential tax savings. If you are trying to decide between getting an HSA or FSA, it is important to look at the tax benefits you stand to get.

The contributions you have made towards your FSA are not included in the gross income and wages report from your employee. The same benefit can also be enjoyed by an employer, which uses the deductions on your salary as business expense, so they are also excluded from the tax computation.

About the New ‘Use it or Lose It’ Rules

In comparison to HSA, this is one of the areas wherein FSA might prove disadvantageous. Deciding on the total amount to contribute to your FSA through your employer is a bit tricky because of the ‘use it, or lose it’ rule. This rule is pretty straightforward: you must use your FSA funds within the plan year. If you don’t, the amount will be forfeited and it won’t roll over the next year.

This therefore places more emphasis on the importance of knowing exactly how much you need to cover for your medical expenses within the next year. Thankfully, there is a provision on this rule that your employer can do to make use of your funds, in the event that you were unable to spend your FSA fund within the allotted time period. The first option is that your employer could extend the deadline by two and a half months. The second option is that $500 of the total amount is rolled over to the next plan year. However, not all employers provide this option with regards to the use of your FSA funds. Make sure to verify with your employer first about their rules on this so you can take the appropriate actions.

The rule change that enables you to rollover a portion of your funds that remain at the end of your plan year can help curtail unnecessary spending from employees in an effort to use up whatever extra funds are left. At the same time, it creates reluctance on the side of employees when it comes to putting their money into FSA at all in fear that they lose the money. This “old school” approach that is entailed with setting up an FSA account is one of the reasons why many prefer HSA funding. The latter is more flexible as unused funds can be rolled over to the next plan year.

HSA vs FSA Which is Better?

What the FSA Is NOT

With an understanding of what FSA is and what it covers in terms of your medical expenses, it is also important to identify what it is not. This is critical so as not to confuse it with other tax-advantaged plans out there (including HSA). A study has revealed that 73% of Americans are confused about these two and are unable to tell the difference. It is therefore important to know what isn’t considered as FSA to save you from confusion.

You can also refer to this table to learn about the difference between HSA and FSA with side-by-side comparison:

 

 

HEALTH SAVINGS ACCOUNT (HSA)

FLEXIBLE SPENDING ACCOUNT (FSA)

Qualification

Must have high-deductible plan to qualify.

No qualification requirements – as long as you are employed you are qualified.

Contribution

Individual contribution cap at $3,450 or $6,900 for families (as of 2018)

Individual contribution cap at $2,650 (as of 2018)

Changes to Contribution

You may make changes to your contributions within the year.

Once the contribution is set for the year, there is no way to change it.

Use of Funds

Any unused funds will be rolled over to the succeeding year and can even be used to cover for retirement expenses.

The FSA comes with a ‘use it or lose it’ policy so you cannot rollover unused balances to the next year.

Employer

You can continue your HSA even when you change jobs or employer.

The FSA is strictly employer-owned so you lose your funds when you quit or are terminated.

Tax Benefits

The contributions for HSA are tax-deductible.

The contributions are made pre-tax while the distribution is not taxed.

 

Making the Most of FSA

While many people would rather choose to open HSA over FSA, there are certain strategies you need to employ in order to maximize the use of the latter. The most basic tip to follow is to not park more money into your FSA account that is more than what you actually need. Since this amount cannot be rolled over to the next year, it is unwise to lose that extra money from your account.

It is also important to evaluate your medical needs from a year-on-year basis. Always take the conservative approach when doing your estimate. If you expect to incur a lot of medical expenses, adjust your estimate accordingly. When the plan year is about to end and you still have funds left in your account, do not simply forfeit that. Spend as much of it as you can to cover for your medical equipment, prescription, and more. It might be a good time to stock up on qualified supplies that you know you will need regardless of your medical condition.

Benefits and Drawbacks

In a nutshell, there are four main benefits that you can enjoy when you set up an FSA account:

  • The FSA is an easy to use program. You will be provided a debit card, also known as payment card, which will be used for all your health and medical transactions. You can use it to make payments and the amount that you owe will be deducted from your FSA funds.
  • The FSA is easy to plan for because unlike health insurance packages wherein you will be choosing from a pre-determined plan, this one allows you to estimate the amount you need for the upcoming year. If you know your medical and health history, you know exactly how much you need for your expenses year on year.
  • The FSA is highly flexible with its use. You can use your flexible savings account for prescription medicines, professional doctor’s fee, medical equipment, and coinsurance payment, among other things.
  • The FSA is a great opportunity to enjoy tax savings. Since you are using pre-tax dollars for your medical expenses, you can save a great deal on your tax payments while enjoying health care benefits.

Despite the many benefits that you can enjoy, there are also certain drawbacks that you can expect with an FSA. Here are some of them:

  • You have to use it or lose it. This is the most significant difference that FSA has over HSA. Whatever funds you have set aside for a specific year must be used within that year, or else you will lose any funds you were unable to spend.
  • You cannot change your monthly contribution amount. Once the contribution is set, you have no means of changing it.
  • You cannot take your FSA funds with you. If, for instance, you quit or had been terminated from your job, you won’t be able to use the employer-provided FSA fund.

Bottom Line

A flexible spending account (FSA) is a great option for those who do not qualify for HSA. It is also a strategy that employers use to retain talent because it offers value-added benefits to them, especially with the rising cost of health and medical care. If both parties – employee and employer – are able to make an agreement and utilize the benefits that are enjoyed as part of this agreement, this is a mutually beneficial perk.

FAQ

HSA Basics

This section has all of the basic facts you need to understand HSA accounts. Use this information to get a better understanding of how an HSA works.

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What Is an HSA Account?

An HSA is a health savings account. It’s a special kind of account you can use to put money aside for medical expenses while reducing your taxable income.

How do HSA Accounts Work?

HSA accounts work by taking some of your paycheck and diverting pre-tax income into the account. You can use the HSA money for medical expenses. It also lowers your taxable income, which reduces your tax burden.

Do HSA Accounts Rollover?

Yes, your HSA account will rollover each year. The money will remain their indefinitely until it is used. There’s no restriction on when you have to use the funds by.

Who Can Contribute to an HSA Account?

Any eligible individual can put money toward and HSA. That includes an employee, employer, or both. If you’re self-employed, then you can contribute or your family.

What Is an HSA Account for Taxes?

Any HSA account for taxes is an account that you divert money into from your pay before it’s taxed. You use the money for medical expenses and your taxable income is calculated after your HSA contributions.

Why HSA Account?

There are several benefits for an HSA account. First, the money is pre-tax, which lowers your taxable income and thus your overall tax burden. Second, you can use the money tax free to cover medical expenses, which reduces your out-of-pocket medical costs.

What Is the Difference Between HRA and HSA Accounts?

An HRA is only provided by an employer, they’re unfunded and have no cash value. An HSA is an account that lowers your tax obligations and can be used to pay for medical expenses.

How Much to Put in HSA Account?

You’re limited to $3,450 in contributions if you’re covered by a consumer directed health plan. Families can contribute up to $6,900

Setting Up an HSA Account

This section answers all of your questions about how to set up an HSA account. Use this information to get everything you need to get your HSA up and running.

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Who Is Eligible for HSA Account?

In order to qualify for an HAS you must be covered under an HDHP and have no other health coverage except those permitted by the IRS. If you use Medicare you can still use a HSA in some cases but may still want medigap insurance. Consult with an insurance professional to get a more accurate answer to this for your specific situation.

How do I Qualify for an HSA Account?

You can qualify for an HSA if you’re covered under a high deductible health plan on the first day of the month and you don’t have any health care coverage except those permitted. You also can’t be enrolled in Medicare or claimed as a dependent.

How to Set Up an HSA Account Health Savings Account?

You can set up an HSA for yourself once you have an HDHP. Your health insurance company will give you details for setting up an HSA through their preferred bank. You can also get information from your employer’s HR department.

How to Open HSA Account?

Health insurance companies and employers have preferred banks for setting up HSA accounts. You’ll want to open an account for an HSA with one of these preferred providers.

Can I Have Two HSA Accounts?

Yes, you can. However, your contributions to the accounts can’t exceed the standard annual maximum contribution limit. You also don’t get any additional tax benefits.

How to Set up HSA Account?

To set up an HSA you’ll need to get in touch with your employer’s or health insurance company’s preferred bank. The bank will walk you thorough the process of setting up the account.

Can One Family Have Two HSA Accounts?

Yes, one family can have two HSA accounts. However, you’re still limited to the maximum contribution of $6,900 and you won’t get any additional tax benefits.

What Do I Need to Open an HSA Account?

You need to be enrolled in a high deductible health plan and not have any disqualifying health care coverage. Once you meet those circumstances, you can talk to your health insurance company’s preferred bank to set up your HSA.

How Many HSA Accounts Can I Have?

There’s no limit on the number of HSA accounts you can have. However, you’re limited to the standard contributions to those accounts. That means individuals can’t contribute more than $3,400 and families can’t contribute more than $6,900

Using an HSA Account

People have lots of questions about how they can use an HSA. We’ll answer all of those questions here.

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How to Use HSA Account?

When you set up an HSA account you’ll get a health benefits card. You can use that card to pay for qualifying medical purchases using either a signature or a PIN.

How to Close HSA Account?

You can close your HSA by contacting your service provider and telling them you’d like to close the account. You’ll then have 60 days to contribute the funds to another HSA in your name or use them for qualified medical expenses.

How to Cash Out HSA Account?

You can cash out your HSA by contacting the bank that manages your HSA and telling them you’d like to do so. However, if you don’t put the money towards another HSA or healthcare expense you’ll need to pay a tax penalty on it.

Do HSA Accounts Earn Interest?

Yes, money in an HSA can earn interest. Also, if you keep more than $1,000 in your HSA account you can invest the remainder in mutual funds or stocks to grow it in a tax-free manner.

What Can be Paid Out of an HSA Account?

You can use an HSA to pay for a huge number of different qualified medical expenses. These range from doctor visits to crutches to legal fees and meals. You’ll need to talk to your bank for more information on what you can use your HSA for.

Can You Pay for Braces with HSA Account?

Yes, you can use HSA money to pay for dental services like cleanings braces, dentures, and dental surgery.

How to Transfer Money Between HSA Accounts?

There’s no industry standard for transferring money between different HSA accounts. That means you’ll need to talk to the companies that manager your HSA accounts to arrange the transfer.

Can I Withdraw Money From My HSA Account?

Yes, the money in an HSA account is yours, and you can withdraw it whenever you want. But if you use that money for something than a qualified medical expense you’ll face a 20% tax penalty.

Can I Use My HSA Account for Dental?

In most cases yes. Pretty much every dental procedure is considered a qualifying medical expense for your HSA. This includes things like X-Rays, routine dental cleanings, root canals and other dental surgery, and braces. This coupled with discount dental plans can usual cover most if not all of the procedure.

What are the Rules for HSA Accounts?

There are far too many rules for HSA accounts to list here. You can find a more detailed explanation of HSA rules by checking with the IRS if you click here.

Can I Pay Health Insurance Premiums with HSA Account?

Not in most cases. There are limited times you can use the money in an HSA account to pay for insurance premiums, such as when you’re receiving unemployment benefits from the government.

How to Reimburse Yourself from HSA Account?

There are several options to reimburse yourself from your HSA account. If you have a checkbook for the account you can write yourself a check. You can also initiation an online transfer or take cash from an ATM if you have ATM access.

Can I Combine HSA Accounts?

Yes. However, there’s no industry standard for transferring or combining HSA accounts. That means you’ll have to talk to the companies that manage your accounts to set up the merge.

How to Transfer HSA Account?

You’ll need to talk to your different HSA account servicers to transfer the account. One common way is to withdraw the funds from one HSA account and deposit them in the other account within 30 days to avoid the tax penalty.

How to Pay Medical Bills with HSA Account?

There are lots of ways you can pay medical bills with an HSA account. You can use a checkbook for the account, a PIN or signature-based card transaction, or you can pay out of pocket and reimburse yourself from the HSA account.

Who Offers HSA Accounts

Before you get an HSA, you’ll need to find someone to host the account. This section answers your questions regarding if different companies offer HSA accounts.

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Who has the Best HSA Accounts?

Any company that lets you invest excess HSA money is a good choice. We like HSA Bank, which allows you to invest self-directed using TD Ameritrade. You can also use Health Savings Administrators which offers a choice of 23 different Vanguard funds or TIAA, T. Rowe Price, and more.

Where to Open HSA Account?

The best place to open an HSA account is the preferred provider for your employer or health insurance company. Using the preferred provider will make payments and transfers much easier.

Does Ally Bank Offer HSA Accounts?

They do not. However, they will set up a system that manages your options to use investment money to fund your HSA account from your Ally brokerage account.

Does Chase Have HSA Accounts?

Yes, Chase offers HSA accounts to people that are eligible for them. You’ll need to contact Chase to set up the account and see what other qualifications apply.

Does US Bank Offer HSA Accounts?

They do. You can find more information about US Bank HSA accounts by visiting their website. US Bank HSA accounts allow you to manage your HSA from the same page you manage your other US Bank accounts.

Does USAA Offer HSA Accounts?

USAA doesn’t offer HSA accounts. The complex nature of managing an account and the tax implications mean that the bank doesn’t want to be involved with them.

Does TD Ameritrade Offer HSA Accounts?

Yes, TD Ameritrade offers self-directed HSA investment accounts. However, you need to send all of the money through HSA Bank before you can invest it. You can’t send funds directly to TD Ameritrade.

Does Schwab Offer HSA Accounts?

Not directly, but you can open an account through the HSA bank Further. You can then invest money in that account through Schwab.

Does Citibank Offer HSA Accounts?

Yes. They also make it easy to make contributions to your HSA. You can either make regular contributions, occasional contributions, correcting contributions, and rollover contributions by filling out a simple form and sending a check addressed to Citibank, N.A. and your HSA account number on the memo line.

Does Etrade Offer HSA Accounts?

Not at this time. We also couldn’t find any record of Etrade partnering with any HSA banks to allow you to use the money for your investments on the platform. But make sure to read our in-depth Etrade review to learn more. 

Does Fidelity Have HSA Accounts?

Fidelity has an HSA plan, but it is not open to individuals. Instead, they have account programs that employers can sign up for on behalf of their employees.

Does PNC Offer HSA Accounts?

They sure do. The PNC HSA account program is called PNC BeneFit Plus. It allows you to divert money from your paycheck into an HSA account to get tax benefits and cover medical costs.

Other HSA Account Questions

There are some HSA questions that don’t fit neatly into our other categories. We’ll cover those questions here.

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Can I Have an HSA Account Without Insurance?

You can have an account without insurance but you can’t make contributions without insurance. In order to contribute to an HSA account you need to have a high deductible health plan.

How Often are HSA Accounts Audited?

There’s no public information regarding how often HSA accounts are audited. However, you should always keep receipts for expenses and payments made from your HSA account in case you are audited.

Who Manages HSA Accounts?

Banks manage HSA accounts. There are specialty banks that only work with HSA accounts and there are more general banks that offer HSA accounts.

What Can I Use My HSA Account to Pay For?

In short, you can use your HSA account to pay for qualifying medical expenses. However, the list of qualifying medical expenses is incredibly long, so we can’t list them all here. You can get a more complete list from the IRS by clicking this link.

Is a Flex Spending Account an HSA?

No – a flex spending account, or FSA, and an HSA are similar, but there are some differences. Both offer pretax benefits, but flex accounts don’t rollover and you can’t contribute as much money to a flex account.

Can Husband and Wife Have Separate HSA Accounts?

Yes, each person can have their own HSA account. However, they’ll be limited in the amount of contributions they can make depending on their filing status.

FSA Basics

In this section, you will learn about some of the basic information you need to know about opening an FSA account. You will also gain insight to why you need one and why it is worth the investment.

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What is FSA?

FSA (Flexible Spending Account) is a type of savings account that is deducted from your monthly salary through your employer, which can be later accessed to fund your health and medical expenses.

What is FSA ID?

The FSA ID is a form of payment card that you can use to make payments on medical purchases convenient. This card is linked to your FSA account.

How does FSA Work?

A flexible spending account is part of your benefits package with your employer. You will be funding your FSA account using pre-tax dollars to cut down on your medical costs.

What does FSA stand for?

FSA literally means Flexible Spending Account. It is a saving account that offers tax advantages to the account holder while also covering for their medical costs.

Is FSA worth it?

Yes. If you have an existing medical condition that entail a lot of cost, starting an FSA account is a great way to save, especially since this account is tax-advantaged.

What qualifies for FSA?

You can access your FSA funds to cover for a variety of health and medical expenses, along with medications and supplies you need for treatment of certain conditions.

How to Use FSA

Due to having many similarities with HSA, it is important to understand fully how you can use FSA for your medical expenses. This section has the information you need to know.

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How does dependent care FSA work?

This type of account can be used for a wide range of services and purchases that relate to dependent care needs, such as prescriptions, child or adult day care, and more. You will also enjoy huge tax benefits with this type of account.

Does FSA roll over?

No, it does not and you must use your funds within the same plan year. There are some revisions to this policy, though, but it will still depend on your employer. Some employers can offer a grace period of up to 3 months, or you can elect to roll over $500 of your unused funds for the next year.

What can FSA be used for?

There are certain eligible expenses that are outlined when accessing your FSA funds. Essentially, it covers for most types of diagnostic services, doctor’s fee, medical equipment, prescription drugs, and other forms of treatment (provided that they are medically required by your doctor).

What does FSA cover?

FSA funds can be used to cover a variety of medical and dental expenses. You, the account holder, along with your spouse can be covered as well.

How to get money back from FSA account?

The pre-tax money that is contributed towards your FSA account cannot be refunded. You must use that amount towards your medical and health expenses for that particular year.

How to get cash from FSA card?

You cannot take cash from your FSA account. You can instead use your payment card to make purchases on qualified expenses.

How to use FSA?

The FSA contributions you make can be accessed for paying eligible health care and medical products or services.

Are vitamins FSA eligible?

If the vitamins are recommended by your doctor to treat an existing medical condition, then it will qualify as an eligible expense. Otherwise, it won’t be covered by your FSA card.

Can I use my FSA card for someone else?

No, unless they are qualified dependents. Your qualified dependents include your spouse and any children below the age of 26.

Can you use FSA for dental?

Yes. Your dental expenses are among the eligible expenses for your FSA.

How to spend FSA money?

You can access your FSA funds to co-pay for your health and medical bills (if you have an existing insurance plan), as well as medications and medical supplies.

Can you use FSA for massage?

Yes. However, you need to provide a letter from your doctor stating that a massage therapy is necessary to your medical condition.

Are FSA funds available immediately?

Yes. Even if you have only contributed for a month, you can get access to the fund for the entire year. For example, if your FSA for an entire year is worth $1,800 (or $500 a month) and you have paid only one contribution thus far, you can still access funds worth $1,800.

Are gym memberships FSA eligible?

No. The IRS considers gym membership as a general health item so it is not linked to treating a specific medical condition.

Are waterpiks covered under FSA?

If the waterpiks is required by the dental practitioner as part of treatment for a medical condition, they are eligible to use their FSA payment card or some form of reimbursement.

Can FSA be used for invisalign?

Yes. Invisalign orthodontics is qualified as an expense under FSA policy. Orthodontic accessories like rubber bands and wax are also FSA-eligible expenses.

Can I use my FSA for my child?

If your child is a qualified dependent, you can use your FSA fund on them. Or, you can also apply for dependent care FSA for them.

How to use FSA card online?

Just like your debit card, you can use your FSA card to pay for online medical purchases, as long as they are FSA-eligible expenses.

Is melatonin FSA eligible?

Sleep aids, like melatonin, are a type of prescription medication that is FSA-eligible. You can use your FSA payment card to purchase them over-the-counter, or are qualified for reimbursement.

Who can use my FSA?

The IRS has stipulated that FSA can be used for eligible medical expenses for the account owner and spouse. The FSA funds can also be used on qualified dependents specified on your tax return form.

Are cough drops FSA eligible?

Yes. Cough drops can be covered by your FSA as long as you have prescription from your doctor. This is not eligible even for qualified dependents, though.

Are nursing pads FSA eligible?

Yes. You can purchase nursing pads using your FSA payment card as it is an eligible expense. This is true for all nursing supplies and won’t require prescription.

Are sunglasses covered by FSA?

Yes, but they must be prescription glasses. Only glasses that are made with prescription lenses that can be used under your FSA account or might qualify for FSA reimbursement.

Are tampons FSA eligible in 2019?

Currently, the IRS regulations state that tampons do not qualify as an FSA expense nor is it qualified for reimbursement. This is one of those products listed under the “general health” category and is therefore not associated with the diagnosis or treatment of certain conditions.

Can I buy an electric toothbrush with my FSA?

Toothbrushes, no matter the kind or type, are considered general health items or products. Therefore, you are unable to use your FSA to cover for this particular expense.

Can I buy condoms with my FSA?

Yes. Condom is considered a qualified expense for the FSA since it is a form of contraceptive that can aid in STD prevention. However, it is not qualified for the dependents and is only eligible for the account owner.

Can you use FSA card at atm?

Unfortunately, you can only use your FSA payment card to make direct purchases on eligible expenses. You cannot take money from your account through an ATM.

FSA Specifics

Would you like to get more in-depth information about FSA? To help provide a more detailed understanding of what FSA entails, this section provides the information you may want to know.

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What is healthcare FSA?

Healthcare FSA is one of three types of FSA accounts that you can set up. It is a pre-tax benefit account that you can use to cover for your health and medical care that are not covered by your health insurance plan.

What is dependent care FSA?

A Dependent Care FSA is another tax-benefit account that you can use to cover for the medical expenses of your dependents, such as young child, children with special needs, or the elderly.

What is FSA medical?

An FSA Medical is a type of account that is accumulated through setting aside a portion of your monthly paycheck to be used for medical purposes and needs.

What is HSA and FSA?

HSA and FSA are two types of savings accounts that are intended to cut down on medical expenses. The difference with HSA is that the funds can be rolled over for the next year when unused, while the FSA employs a ‘use it or lose it’ policy. Both are tax-advantaged accounts, though.

What is the difference between HSA and FSA?

Health savings account (HSA) and flexible spending account (FSA) are different in terms of their eligibility requirements and how you use the funds available. While HSA funds can be rolled over to the next plan year, the FSA funds must be used within the plan year it is obtained. You can also lose your FSA fund when you quit or are terminated from your current job.

Can you have an HSA and FSA?

In general, you cannot have both HSA and FSA. But you can have FSA for specific types of medical costs such as dental or eye care. For this reason, you can opt to contribute to your employer’s FSA program even when you have HSA.

What happens to FSA when you quit?

You will also lose your access to your FSA funds, because this is an employee benefit and is provided through your employer. You will also lose your funds when you are terminated from your job.

What happens to unused dependent care FSA funds?

Just like the healthcare FSA, the FSA funds for dependent care will also not be rolled over if they are unused. Some employers will allow grace period but for a limited time only.

When will 2019 FSA limits be announced?

As of November 2018, the IRS has issued limits on the FSA contributions for 2019. The new limit for health FSAs is at $2,700 (which saw an increase of $50 from the previous limit of $2,650).

Can both spouses have an FSA?

Yes. Either spouse can be FSA account holders. But when you apply for reimbursement, you are not allowed to apply for reimbursement on both accounts for the same expenses.

What is an FSA plan?

An FSA plan is a type of savings account that enables you to use your pre-tax money as a source of funding for your medical expenses within the plan year. You can use it to cover for medical expenses for yourself, or any of your dependents.

How much should I put in my FSA 2019?

Use your medical expense history as a way to determine how much coverage you need for your FSA on a given year. This will ensure that you do not put more money than you need to, especially since the money won’t rollover to the next year.

How to create an FSA ID?

When you open your FSA account, you will be assigned a plan ID. You can use that ID to access your account online so you can check how much fund is left on your account.

What is the maximum FSA contribution for 2019?

The maximum contribution cap for FSA contributions has been raised to $2,700 in 2019 (from the previous limit of $2,650 for 2018).

Can an employer contribute to an FSA?

Yes. Employers who choose to contribute to an employee’s FSA can either match the payment made by the employee up to the limit of set for FSA contributions, which is currently at $2,700. However, it is completely up to the employer to make the contribution.

Can you claim FSA on your taxes?

Your FSA contributions are not considered tax-deductible. However, it will reduce your total income that is taxable since the amount is paid with your pre-tax dollars.

Rachel Carey

Rachel Carey

Financial Guru

Rachel is dedicated to helping individuals and families boost their budgets so they can enjoy the lifestyle they deserve. Rachel graduated with a degree in Family and Consumer Sciences. She’s a prolific finance writer, producing tons of articles on different aspects of personal and family budget management.

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