HSA and FSAs: Planning for Your Healthcare Needs

September 14, 2023
  • Private Banking
Senior Relationship Associates Sean Kennedy and Lucy Townend discuss the key differences between HSA and FSA plans so you can best plan for the future.

When planning for the future, it can be daunting to predict and save for future medical bills, especially for people who are years away from retirement. Fortunately, there are two tax-efficient vehicles that individuals can use to save for these expenses – health savings accounts (HSAs) and flexible spending accounts (FSAs).

HSAs vs. FSAs: What’s the Difference?

Both HSA and FSA accounts allow individuals to save money for medical bills before that money is taxed, and any withdrawals made from these accounts for qualifying medical, dental, and vision expenses are also tax-free. Individuals in the highest income tax bracket may save up to 45% on each dollar contributed to one of these accounts.

There are several key differences between the two accounts. HSAs are typically only available for those enrolled in an HSA-eligible health insurance plan, while FSAs are offered directly by an employer, and any eligible employee can contribute to one. An HSA belongs to the subscriber, which means that you can keep your HSA if you move jobs or are unemployed, whereas an FSA is owned by the employer.

Many FSA plans are part of a “use it or lose it” rule, where any unused contributions in the account are forfeited at the end of the year. If an employer has enrolled in FSA plans that allow for a grace period option, certain plans may carry over a portion of funds for two and a half months past the calendar year.

HSA vs. FSA Comparison Chart



Available for those enrolled in an HSA-eligible health plan

Offered directly by an employer; any eligible employee can contribute

Belongs to subscriber

Owned by the employer

Contributions don’t have an expiration date

“Use it or lose it” – unused contributions are forfeited at the end of the year

Individuals can contribute up to $3,850 and families up to $7,750

There is a contribution limit of $3,050*

*Employers can set their own contribution limits below this amount

Amount accumulates as you contribute

Funds for the year are available on day one

When familiarizing yourself with both types of plans, it’s important to understand how each may optimize your future medical bills and provide an opportunity for retirement savings.

Key Considerations for Both Plans

Availability of Funds

There is a key difference in the availability of funds in the two accounts: With an FSA, the entirety of the contribution for the year is available on day one, whereas the amount in an HSA only accumulates as you contribute. However, you can reimburse yourself for medical expenses with an HSA once funds become available. In an HSA, you can carry over any of your unused funds year to year, while you may often forfeit any funds in an FSA when a new benefit year begins.

Contribution Limits

Keep in mind that each account has contribution limits too; for HSAs in 2023, you can contribute up to $3,850 for individual coverage and up to $7,750 for family coverage. The maximum contribution for an FSA in 2023 is $3,050, but employers can set their own contribution limits below this amount for their plans.

If you’re unable to max out the contributions to your HSA, you can transfer funds from your traditional IRA to your HSA account. While this feature isn’t available for 401(k)s or Roth IRAs, one option is to roll over some funds into a traditional IRA to make the HSA contribution.

Types of Accounts

There are three types of FSA accounts:

  • Healthcare FSA      
  • Dependent care FSA    
  • Limited purpose FSA      

For families, the dependent care FSA allows a maximum annual contribution limit of $5,000 per household. While you can’t have both an HSA and a healthcare FSA at the same time, families are able to enroll in both an HSA and limited purpose FSA. When enrolled in both, the HSA portion covers healthcare expenses, and the FSA covers vision and dental expenses.

Annual Deductibles and Spending

HSAs are typically only available with a high-deductible health plan (HDHP), so an individual or family making many trips to the doctor may opt for a lower-deductible plan and choose an FSA over an HSA. Even though the FSA funds may not carry over year to year, they can be used to stock up on medical supplies before year-end. For dependent care FSAs, you are allotted a broader range of eligible expenses, including childcare costs for children ages 13 and under.

For those not needing to spend their pretax contributions in a certain year and looking for an option to grow their nest egg, an HSA allows subscribers to save and invest their contributions while reaping the rewards of a triple tax benefit.

Zeroing In on HSAs: The ‘Trifecta’ of Tax Benefits

Certain features of an HSA that aren’t available in an FSA can make them a powerful savings tool for retirement. You are eligible to invest funds in an HSA, allowing contributions to be triple tax-advantaged:

  • Contributions are made pretax
  • All growth in the account is tax-free
  • Any distributions used for qualified medical expenses are also tax-free

When invested on a long-term horizon, HSA investment returns can make a significant difference in your retirement savings. For example, let’s say an individual contributes $200 at the end of each month into an HSA investment account beginning at age 25. If left untouched over a 40-year horizon while assuming the S&P 500’s 20-year 9.75% historical rate of return, the HSA investment account would have over $1 million of available funds.

What if you don’t need all that money for health expenses throughout your lifetime? Before the age of 65, there is a 20% penalty for taking funds out of an HSA for something other than a qualified medical expense. Upon attaining 65, this penalty is waived, meaning that you can treat your HSA like any other retirement account and withdraw money as needed.

Armed with more knowledge about these tax-efficient vehicles, you may be wondering how much to contribute, how to invest, and which health plan is best for you. Reach out to our Next Generation Experience team to decide the best way to use these healthcare plans to you and your family’s advantage.

Neither, Brown Brothers Harriman, its affiliates, nor its financial professionals render tax advice. Please consult with your tax advisor concerning your particular circumstances.

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