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HSA vs. FSA Understanding how an HSA is different from an FSA

Aug 31, 2021
Empower Insights

When it comes to planning for your financial future, there are plenty of steps you can take to give it a clean bill of health.

One of those is opening a health savings account (HSA).

Today, more than 56% of organizations offer an HSA as part of their workplace benefits package.1 However, most employers typically leave it up to each individual to manage their account, despite the fact that many people don’t fully understand how an HSA works.2,3

Because there are many advantages of HSAs, it’s important to understand their benefits and how they compare to other accounts, specifically flex spending accounts (FSAs).

At first glance, HSAs and FSAs seem similar. They both offer tax benefits — and they’re both used to pay for medical expenses.

But the two accounts have plenty of differences when it comes to contribution limits and retirement implications.

Here’s what you need to know.





Who’s eligible

Anyone enrolled in a qualifying high-deductible health plan (HDHP) who has no other coverage

Anyone with health insurance through an employer

Who owns the account



Who’s covered

You, your spouse, dependents and children under 27

You, your spouse, dependents and children under 27

What you can use it for

  • Current healthcare expenses
  • Healthcare expenses in retirement

Current healthcare expenses

What’s covered

  • Qualified health expenses as defined by the IRS
  • Insulin
  • Prescription drugs and prescribed OTC drugs
  • Premiums for long-term care insurance and COBRA coverage
  • Qualified health expenses as defined by the IRS
  • Insulin
  • Prescription drugs and prescribed OTC drugs



Withdrawals for non-medical expenses

  • If you’re under age 65, you pay income taxes and a 20% penalty on the withdrawal
  • If you’re age 65 or over, you pay income taxes on the withdrawal

Not allowed

How to use it

  • Pay for the expense with your HSA debit card


  • Pay out of pocket and reimburse yourself later

Make a claim through your employer for reimbursement; you’ll need proof of both the expense and the fact that your insurance didn’t cover it

Use-it-or-lose-it provision

None; your HSA assets roll over from year to year

  • In general, you lose any unspent funds at the end of the year
  • Some FSAs let you roll over $500 into the next year
  • Others give you 2½ months into the next year to spend your balance1

Ability to invest

Yes; many HSA providers allow consumers to invest in mutual funds


Ability to save for healthcare costs in retirement

Yes; HSA savers can hold their investments indefinitely


2021 contribution limits

  • $3,600 for individuals in an HDHP
  • $7,200 for a family HDHP
  • Enrollees who are age 55 or older can contribute an additional $1,000


An HSA — offered through your employer or another provider —  can be a smart way to save for both current medical bills and healthcare costs you’ll face in retirement. Explore the benefits of an HSA today.


Empower Retirement, LLC and its affiliates are not affiliated with the author or responsible for the third-party content provided.


1 Society for Human Resource Management, “Healthcare and Health Services: SHRA employee benefits 2019,” 2019.

2 Plan Sponsor Council of America, “HSA Survey,” August 2021

3 Plan Sponsor Council of America, “HSA Survey,” August 2020.

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