Flexible Spending Account (FSA)
Learn more about what an FSA is and how it compares to another popular option, the health savings account (HAS). Empowering you to make the best choice for your situation.
What is an FSA?
A flexible spending account (FSA) is a special account you put money into that you can use to pay for health care costs like deductibles and copayments1. An FSA is only available when you have a health plan through your employer.
What are the advantages of an FSA?
- You don’t pay taxes on the money that you put into an FSA account. This means you’ll save an amount equal to the taxes you would have paid on the money you set aside.
- Your FSA can be set up as a Dependent Care FSA (DCFSA) to allow withdrawals for childcare expenses. It is also possible to have another FSA to cover medical expenses, depending on your employer’s plan.
- Employers can make contributions to your FSA. They aren’t required to but many employers who offer FSAs will make a yearly contribution to help you get started on your savings.
What are the disadvantages of an FSA?
- Use-it-or-lose-it’ means that your funds do not roll over if you don’t use them, which can lead to a loss of those unspent funds.
- The employer owns the account, and the account is forfeited if you leave the job.
- The FSA account does not earn interest.
- There are fees for withdrawals.
What’s the Difference Between an FSA and an HSA?
A health savings account (HSA) is another popular option to save for medical expenses. Since FSAs are only available through an employer, you forfeit access to the account if you ever leave your job.2 With a health savings account (HAS), however, the account is yours and you can continue to access the account if you ever change jobs.2
Another advantage HSAs have over FSAs is that the balance in the account rolls over each year. FSAs have a “use it or lose it” rule attached to them, meaning you’ll forfeit any funds left in the account at the end of the year. HSAs also have higher contribution limits than FSAs, and you can change your contribution amount at any time.2 With an FSA, you’ll set your contribution limit at the start of the year, and you cannot change it until open enrollment rolls around again.
Families with children often consider FSAs because they can use the funds for expenses like childcare if the account is set up as a Dependent Care FSA.2 So, this is a nice option if you’re looking for a way to save for daycare or other childcare expenses in advance.
Who Can I Talk to about opening an FSA?
If you have questions about FSAs and need some guidance, contact our Financial Life Planning team. They can help you consider the costs and determine if this is the right savings option for you.
Whether you’re currently in open enrollment or preparing for the next season, it’s beneficial to your health and your finances to consider all your insurance and medical savings options. Choosing a savings plan may be difficult, but our team is here to help.
1HealthCare.gov (2024, April 16). Using a Flexible Spending Account (FSA) Retrieved from https://www.healthcare.gov/have-job-based-coverage/flexible-spending-accounts/
2Parker, T. (2023, May 25). Health Savings vs. Flexible Spending Account: What’s the Difference? Investopedia. Retrieved from https://www.investopedia.com/insurance/hsa-vs-fsa/