FSA vs. HSA – What’s the difference?

It’s open enrollment season. Woohoo!

Time to pick through the alphabet soup of employee benefits. (Why must everything get abbreviated?)

One of the more common questions we get is the difference between FSA and an HSA.

(It feels like they’re trying to confuse us on purpose, dunnit?)

So here the cheat code:

HEALTH SAVINGS ACCOUNT (HSA) – this is triple-tax free account I’m always yapping about. You can only contribute to it if you’re enrolled in a High Deductible Health Plan (HDHP). 

FLEXIBLE SPENDING ACCOUNT (FSA) – this is the use-it-or-lose-it account you’re thinking of. You add pretax money and use it for qualified medical expenses. BUT you have to use it before year-end or you lose it all. (There’s usually either a small grace period or a small rollover amount, but conceptually just think use-it-or-lose-it.)

There are different types of FSA’s and the main two ones are Medical and Dependent Care. If you’re enrolled in a HDHP with an HSA, you CANNOT also contribute to a Medical FSA.

However, you CAN contribute to a Dependent Care FSA, which is mostly used for your kids after-school activities.

And there you have it. 

If I was a conspiracy theorist, I’d bet that they made two very similar accounts have very similar acronyms to paralyze us from using them (and therefore pay more taxes than we need to). 

But it’d be crazy to think that, right? 🤔