This lesson is general education about U.S. personal finance, not financial, tax or investment advice. Tax rules and limits change every year; check IRS.gov or a qualified professional for your situation.
What you’ll learn
- You can open an HSA only if you are covered by an HSA-eligible high-deductible health plan; any employee whose employer offers an FSA can enroll in one.
- The health FSA contribution limit is $3,300 for tax years beginning in 2025 and $3,400 for plan years beginning in 2026; HSA limits are set each year by the IRS.
- FSA money is generally use it or lose it, though plans may allow carryover up to $660 from 2025 to 2026; HSA balances roll over year to year.
- An HSA belongs to you even if you change jobs and can be invested for tax-free growth; an FSA is employer-owned and generally stays behind when you leave.
Open enrollment packets often list two tax-advantaged accounts next to the health plans: a health savings account (HSA) and a health care flexible spending account (FSA). Both let you pay for medical costs with money that is never taxed. They are not interchangeable, and the choice usually turns on a single question: which health plan are you enrolling in?
The Decision That Comes First: Your Health Plan
An HSA is available only if you are covered by a high-deductible health plan (HDHP). An HDHP carries a higher annual deductible than typical coverage plus a cap on the deductible and out-of-pocket costs combined, and it generally charges lower premiums than traditional plans. The IRS sets the deductible minimums and out-of-pocket caps, so check Publication 969 for the current figures or ask your insurer whether your plan qualifies. An HDHP can cover preventive care without a deductible, and the list of permitted preventive services includes items such as over-the-counter oral contraceptives and continuous glucose monitors for people diagnosed with diabetes.
An FSA has no health plan requirement at all. Any employee whose employer offers one can enroll, whatever medical plan you pick. If the enrollment packet reads like a wall of acronyms, open enrollment terms to know sorts out the vocabulary first.
One rule ties the accounts together: you cannot contribute to an HSA and a traditional health FSA in the same year. The exception is a limited-purpose FSA, which covers only dental and vision costs and can sit alongside an HSA.
Contribution Limits and Tax Treatment, Side by Side
For tax years beginning in 2025, you can put up to $3,300 of pre-tax salary into a health FSA. For plan years beginning in 2026, that ceiling rises to $3,400. HSA limits are also set annually by the IRS, and there is no minimum, so you can contribute whatever your budget allows up to the yearly cap. Employers can add money to either account, and those contributions are tax free to you.
FSA contributions come out of your paycheck before income tax is figured. Payroll-deducted HSA contributions also avoid Medicare and Social Security taxes, while HSA money you contribute on your own and deduct at tax time does not. A saver in the 22 percent federal bracket could keep nearly 30 percent of each contributed dollar once federal income, payroll and possible state income taxes are counted. Both accounts appear as deductions on your paycheck; reading your pay stub, line by line shows where they land.
Both accounts pay for the same kinds of costs: deductibles, copays, coinsurance, prescriptions and some dental and vision care. The tax rules draw the line at expenses that diagnose, cure, mitigate, treat or prevent disease, not items that are merely good for general health. Neither account can generally be used for premiums.
| Feature | HSA | Health FSA |
|---|---|---|
| Eligibility | Must be covered by an HSA-eligible high-deductible health plan | No plan requirement; offered through an employer’s cafeteria plan |
| Contribution limit | Yearly IRS limit; no minimum | $3,300 for tax years beginning in 2025; $3,400 for plan years beginning in 2026 |
| Tax treatment | Contributions pre-tax, balance grows tax free, qualified withdrawals untaxed | Contributions pre-tax; no growth |
| Leftover money | Rolls over indefinitely | Generally forfeited; some plans allow carryover up to $660 from 2025 to 2026 |
| Ownership | You own the account, even if you change jobs | Employer owns the plan; it generally stays behind if you leave |
| Access to funds | What you have contributed so far | The full year’s election is available on day one |
Use It or Lose It: FSA Deadlines vs. HSA Rollovers
The FSA runs on an annual clock. When the new benefit year starts, you generally forfeit whatever remains from the old year. Many plans soften that rule, either by letting you carry over a small balance, up to $660 from 2025 to 2026 and $680 from 2026 to 2027, or by granting a short grace period to spend the money. Because the full year’s election is available immediately, a well-sized FSA can front-load your spending; an oversized one can strand cash you never recover.
An HSA has no deadline. Your balance rolls over year to year and can earn interest that is not taxed, so unused money simply stays put and keeps working.
The HSA as a Long-Term Savings Tool
The HSA carries what planners call a triple tax advantage: contributions go in untaxed, the balance grows tax free, and withdrawals for qualified medical expenses come out tax free. Once your balance passes a threshold set by your provider or employer, you can invest part of it in mutual funds and other securities, which lets years of unused medical money compound. Compound growth and why starting early matters explains that math.
Two rules shape the long game. Once you turn 65, you can spend HSA money on anything, though non-medical withdrawals count as taxable income. And six months before you retire or start Medicare, you must stop contributing, although you can keep using the balance for medical costs Medicare does not cover.
Which Account Fits Your Situation
An FSA fits someone whose medical costs are predictable and near-term: a monthly prescription, planned dental work, recurring therapy visits. It works with any employer plan, and spending down the balance is manageable when the amounts are steady.
An HSA fits someone enrolled in an HDHP who wants money to carry forward and grow. It works especially well if you are already contributing to a 401(k) and an IRA and want another tax-advantaged place to save, with tax-free medical withdrawals as the reward for patience.
Holding both is possible only in the limited-purpose form: an HSA plus an FSA reserved for dental and vision.
Try it
Size an FSA to the costs you can predict with confidence. The tax savings are real, but so is the forfeiture if your estimate runs high.
What Happens to Each Account if You Change Jobs
An HSA belongs to you, not your employer. You keep control of the funds when you change jobs, including any money your employer contributed.
An FSA belongs to the employer’s plan. You generally cannot take it with you, and you may lose access to leftover funds unless you elect COBRA continuation. Before your last day, check your balance and your plan’s rules with the benefits office, since the treatment of unused money depends on how the plan is written.
Common questions
Can I have both an HSA and an FSA?
Not in the same year, with one exception. You cannot contribute to an HSA and a traditional health FSA together, but you can pair an HSA with a limited-purpose FSA reserved for dental and vision costs.
What happens to FSA money I do not spend?
You generally forfeit it when the new benefit year starts. Some plans let you carry over a small amount, up to $660 from 2025 to 2026, or give you a short grace period to spend it.
Do I need a high-deductible health plan for an FSA?
No. The high-deductible requirement applies only to HSAs. Any employee whose employer offers an FSA can sign up during open enrollment.
Can I use my HSA for non-medical expenses after 65?
Yes. Once you turn 65, you can spend HSA money on anything, but withdrawals that are not for qualified medical expenses count as income on your tax return.