Exploring FSA vs. HSA vs. HRA

Health insurance can already be confusing enough, and then you throw in FSAs, HSAs, and HRAs — three different ways to save on medical expenses — and it’s easy to feel overwhelmed. Here are the facts, so you can make the best choice for your health and wallet.

Paying for healthcare comes with plenty of options: Flexible Spending Accounts (FSAs), Health Savings Accounts (HSAs), and Health Reimbursement Arrangements (HRAs). Each has its own goal of keeping your out-of-pocket costs low for medical help but that in very different ways.

Key takeaways

• FSAs, HSAs, and HRAs all help cover medical expenses, but they work differently. HSAs and FSAs let you contribute pre-tax dollars, while HRAs are entirely employer-funded.
• HSAs are the most flexible option. They roll over every year, grow tax-free, and stay with you even if you change jobs.
• HRAs are like “free money” from your employer. You don’t contribute, but you also don’t own the funds.

Understanding your health savings options

What are FSAs?

A Flexible Spending Account (FSA) is a tax-advantaged account that helps you set aside pre-tax dollars to pay for qualified medical expenses. These accounts are usually just for those with employer-sponsored coverage. So, what’s the catch? Some employers allow a small rollover or a grace period to spend the funds, but for the most part, you’ll have to use it or lose it within the FSA’s defined timeframe.

FSAs are great if you have predictable medical expenses — like prescriptions, regular doctor visits, or planned procedures. They also cover things like eyeglasses, dental work, and even over-the-counter medications.

The 2024 contribution limit for FSAs was $3,200, but keep in mind if you leave your job, you usually lose whatever’s left in the account.

Advantages:

• Saves you money on taxes
• Covers a wide range of medical expenses
• Available even if you don’t have a high-deductible plan

Drawbacks:

• You must use the funds or lose access to them
• Not portable—you lose funds when switching jobs

What are HSAs?

A Health Savings Account (HSA) is a triple-tax-advantaged account that works like a medical savings account. You can contribute pre-tax dollars, the money grows tax-free, and you can withdraw it tax-free for qualified medical expenses. The best part? Unlike FSAs, your HSA stays with you forever — even if you switch jobs. It never expires! That means you don’t have to worry about using it or losing it.

There are a couple of drawbacks to choosing this type of account though. You can only have an HSA if you’re enrolled in a High-Deductible Health Plan (HDHP). If that works for your budget, an HSA can be an amazing way to save money.

In 2024, you could contribute up to $4,150 or $8,300 for a family plan. And if you’re 55 or older, you can throw in an extra $1,000 as a catch-up contribution. Plus, after you turn 65, you can use the money for anything. Keep in mind that non-medical withdrawals will be taxed, similar to a retirement account.

Advantages:

• Funds never expire — rolls over yearly
• You own the account, even if you switch jobs
• Can be a smart way to save for retirement

Drawbacks:

• Only available with HDHPs
• Requires financial planning to maximize benefits

What are HRAs?

A Health Reimbursement Arrangement (HRA) is different from FSAs and HSAs because you don’t contribute anything— your employer does. They decide how much to fund, what expenses are eligible, and whether unused funds roll over.

Since HRAs are completely employer-funded, there’s no tax benefit for you, but any reimbursements you receive are tax-free. If your employer offers an HRA, it’s basically free money to help with medical costs — so take advantage! Who doesn’t love free money?

The drawback? HRAs are not portable. So, if you end up leaving your job, you also lose access to your HRA funds unless your employer allows some form of continuation.

Advantages:

• Employer-funded — no money comes out of your paycheck (like free money!)
• Tax-free reimbursements for eligible expenses
• Employers can offer flexible spending options

Drawbacks:

• You don’t own the account or control contributions
• Funds disappear if you leave your job
  

Key differences between FSAs, HSAs, and HRAs

While all three accounts help with medical expenses, the biggest differences come down to who owns the money, whether funds roll over, and how much control you have.

All three of these options help cover medical costs while offering tax benefits. Some accounts roll over, some expire, and some are basically free money. Which one is right for you?

	FSA	HSA	HRA
Who funds it?	You, but in some cases, your employer	You and your employer	Employer
Ownership	Employer	You	Employer
Tax benefits	Pre-taxed contributions	Pre-taxed contributions and tax-free	Tax-free reimbursements
Rollover	Use it or lose it	Rolls over to the next year	Employers decides
Portability	Stays with your employer	Sticks with you	Stays with your employer

The best choice depends on your individual circumstances, including your health needs, financial situation, and employment benefits.

Choosing the right health account for you

If you want as much flexibility as possible and savings that will stretch, an HSA is your best bet. If you just need short-term tax savings for medical expenses, an FSA works great — just keep in mind potential rollover limitations. If your employer offers an HRA, take advantage of the free money while it’s an option!

No matter which type of account you land on, understanding your options helps you maximize savings and make the most of your healthcare dollars. Just be sure to consult a tax professional for more information if you still need a bit of help. So, check your benefits, crunch the numbers, and pick the best fit for your all of your needs!

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