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HSA vs FSA: What’s the Difference?

Which would you rather improve, your health or your wealth? That’s easy. Both, of course! So, what if there was such a thing as tax-advantaged accounts that save you money and help you cover health care costs? That would be awesome! And the good news is, they’re real.

They’re called Health Savings Accounts (HSAs) and Flexible Spending Accounts (FSAs). The main difference is that self-employed individuals can’t get FSAs, but there are a few other things separating the two. We’re going to help you understand all the differences between them here.

What Are HSAs and FSAs?

HSAs and FSAs are tools that you can use to hit two main objectives: saving up for health care costs and sheltering your money from taxes. To understand them better, let’s start with a look at HSAs.


HSAs are savings accounts available to those with a qualified high-deductible health plan. You can use HSAs to pay for qualified medical expenses tax-free.1 There’s almost nothing we like more than paying fewer taxes! Many employers offer an HSA as part of a benefits package, so be sure to see if one’s available to you. Another option is to open one through a bank or vendor.


Find out if you're eligible for an HSA.

Not only can you use your gross pay to contribute to an HSA before the government gets its cut, you’ll also avoid any taxes when you spend from one! (That’s as long as you’re paying for legit medical expenses—just because you want a brighter smile doesn’t mean you can spend HSA money to have your teeth whitened.)

In case skipping taxes on the front and back end isn’t enough budget boosting for you, HSA money can also be invested for future medical needs—and even for retirement—all while growing tax-free. So, having an HSA allows you to:

  • Invest tax-free
  • Grow your money tax-free
  • Spend your money tax-free

It’s a tax-free triple play! And if your employer happens to offer one as a benefit, be sure to check if they give any employee match. Once you have your regular full emergency fund in place, investing in an HSA to get the match is a no-brainer.

As great as it is to have an HSA, it’s important to keep this in mind: Nobody can open one without also having a high-deductible health plan (HDHP).

For plan years 2021 and 2022, the minimum deductible to qualify for an HSA is $1,400 for an individual and $2,800 for a family.2 And even if your deductible meets those minimums, it still might not qualify.

That’s because the IRS also sets a limit on a plan’s annual maximum out-of-pocket costs to be an HDHP. For 2021, that’s $7,000 for individuals, and $14,000 for a family.3 For 2022, the maximum out-of-pocket cost bumps up to $7,050 for individuals and $14,100 for families.4

The government also sets annual contribution limits on HSAs. For 2021, the limit is $3,600 for an individual and $7,200 for a family.5 For 2022, individuals will be able to contribute $3,650 while families can contribute up to $7,300 into their HSAs.6 But those numbers can change. So, before starting an HSA, always be sure you know the latest rules.

We know having an HDHP and paying more out of pocket before the insurance kicks in might sound unappealing, but it does mean lower premiums. So if you don’t go to the doctor much, you’re probably good with that higher deductible and those sweet premium savings.

By sending the difference to your HSA tax-free while investing the money for future medical or retirement needs, you can hedge against potentially higher out-of-pocket costs as your investment grows. Smart move!


Flexible Spending Accounts also allow you to save for qualified medical expenses without paying taxes on your contributions. The funny thing is that despite the name, they’re actually less flexible than HSAs. But that’s not to say they can’t be used to flex on some medical costs.

The only way you can get an FSA is as part of an employee benefits package. The self-employed need not apply. And if you do opt for one at work, you’ll also have to decide each year how much gross pay you want deducted from your paycheck. Wherever you land on that, you won’t be able to adjust contributions again until your employer’s next open enrollment.

Something else that’s not as flexible with the FSA? The money itself. You can’t invest it. And you usually won’t be able to roll the account funds over from year to year. In other words, it’s a “use it or lose it” benefit.

If you’re wondering where the forfeited money goes, the answer is into your employer’s pocket.7 They can use it either to cover the cost of administering the FSA program or share the money in other employees’ FSAs. And even if your employer does opt to allow rollovers, the IRS rollover limit is $550 per year.8

The last thing you want is to have dedicated too much money to something you no longer need and will simply lose if you don’t spend it. Underfunding your FSA a little bit heads that possibility off (while still getting you some tax savings).

Despite those rules, FSAs could be a good approach for you. The single biggest way the FSA does live up to its flexible namesake is that you can use it to pay for childcare, something an HSA can’t cover. So if you’re a busy working parent and your employer offers an FSA, it might be a great way to pay less taxes and save on that day care bill.

Differences Between HSAs and FSAs

As with an HSA, the money in an FSA lets you dodge the tax man both when you’re contributing and when you’re withdrawing. But remember, both accounts have the same legal limits on what you can spend money on—you can’t just pay for anything tax-free. (So, no, your therapeutic golf club membership still doesn’t qualify.)

Let’s take a closer look at the differences with a side-by-side comparison:




Who Qualifies?

Only those with a qualified HDHP can have an HSA. Also excluded is anyone on Medicare, and anyone who’s claimed as a dependent on someone else’s tax return. The minimum deductible for 2021 and 2022 is $1,400 (individual) or $2,800 (family).

Only those who are offered one as an employee benefit can have an FSA. If that’s you, there are no other requirements to open one.

Can self-employed people get this?



What if you change jobs?

The HSA belongs to you and follows you, even if it was employer-provided. That’s cool!

The only way to keep the FSA is if you have COBRA coverage allowing it. Otherwise, you forfeit the funds in it, and you may have to repay your previous employer any funds you spent that aren’t yet covered by payroll deductions.

How do rollovers work?

All the money rolls over every year and can remain there until you need it.

Anything left at the end of the year expires. The only exception is when your employer allows rollovers, which the IRS limits to $550 per year.

How much are you allowed to contribute?

The 2021 max for HSA contributions is $3,600 for an individual and $7,200 for a family. For 2022, the max is bumped up to $3,650 for individual coverage and $7,300 for family coverage.

IRS max contribution for an FSA in 2021 is $2,750. But be aware that the employer who owns the account can set the limit lower.

Can you adjust how much you’re contributing at any time?

Pretty much, yes, within the annual limits.

No. The annual contribution amount can only change during open enrollment time, or if you have certain changes such as a newborn child or a change of employer.

Can your money grow?

Absolutely! You can invest it, and any growth is tax-free!


How do the taxes work?

There are no taxes at all unless you withdraw money and use it on an unqualified expense. Otherwise, contributions are tax-deductible, payroll deductions go in pre-tax, growth is tax-free, and distributions for qualified medical expenses are too! Maybe best of all? After 65, it all becomes tax-free savings that you can use for anything in retirement.

Both contributions and distributions happen

The truth is that both accounts work really well when paired with an HDHP, because they let you save on health insurance premiums. And while the rollover funds of an HSA may seem like a slam-dunk choice—and we admit that the tax-free growth is enticing—an FSA also works well for many people.

HSA vs FSA: Which Is Right for You?

Whether you should go with an FSA or an HSA depends on your situation. If your employer offers an FSA as an employee benefit, it might make a lot of sense for you. On the other hand, (and depending on what Baby Step you're on), the opportunity to grow your investments inside an HSA and roll them over for as long as you want is an incredible way to make progress on both health and retirement goals at the same time.

As health care costs keep rising, who’s not on the lookout for ways to save? You can open your HSA today and start saving for qualified medical costs.

Ramsey Solutions

About the author

Ramsey Solutions

Ramsey Solutions has been committed to helping people regain control of their money, build wealth, grow their leadership skills, and enhance their lives through personal development since 1992. Millions of people have used our financial advice through 22 books (including 12 national bestsellers) published by Ramsey Press, as well as two syndicated radio shows and 10 podcasts, which have over 17 million weekly listeners. Learn More.

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