Chris Kissell has been a journalist for three decades and has written extensively about insurance and other personal finance topics for the past 20 years. For the last 14 years, he has been a full-time freelance writer and editor, contributing to sit.
Chris Kissell Insurance WriterChris Kissell has been a journalist for three decades and has written extensively about insurance and other personal finance topics for the past 20 years. For the last 14 years, he has been a full-time freelance writer and editor, contributing to sit.
Written By Chris Kissell Insurance WriterChris Kissell has been a journalist for three decades and has written extensively about insurance and other personal finance topics for the past 20 years. For the last 14 years, he has been a full-time freelance writer and editor, contributing to sit.
Chris Kissell Insurance WriterChris Kissell has been a journalist for three decades and has written extensively about insurance and other personal finance topics for the past 20 years. For the last 14 years, he has been a full-time freelance writer and editor, contributing to sit.
Insurance Writer Les Masterson Deputy Editor, InsuranceLes Masterson is a deputy editor and insurance analyst at Forbes Advisor. He has been a journalist, reporter, editor and content creator for more than 25 years. He has covered insurance for a decade, including auto, home, life and health. Before cove.
Les Masterson Deputy Editor, InsuranceLes Masterson is a deputy editor and insurance analyst at Forbes Advisor. He has been a journalist, reporter, editor and content creator for more than 25 years. He has covered insurance for a decade, including auto, home, life and health. Before cove.
Les Masterson Deputy Editor, InsuranceLes Masterson is a deputy editor and insurance analyst at Forbes Advisor. He has been a journalist, reporter, editor and content creator for more than 25 years. He has covered insurance for a decade, including auto, home, life and health. Before cove.
Les Masterson Deputy Editor, InsuranceLes Masterson is a deputy editor and insurance analyst at Forbes Advisor. He has been a journalist, reporter, editor and content creator for more than 25 years. He has covered insurance for a decade, including auto, home, life and health. Before cove.
| Deputy Editor, Insurance
Updated: Feb 20, 2024, 6:31am
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Health savings accounts and flexible spending accounts offer two of the best ways to put aside money tax-free for health care expenses.
A health savings account (HSA) offers the opportunity to build a stash of cash that can help you pay medical expenses for years or even decades. But not everybody is eligible for an HSA.
On the other hand, just about everyone is eligible for a flexible spending account (FSA). However, you generally can’t carry over money in this savings account into the following year. Either you use it or you lose it.
Here’s more about these medical savings accounts and which one is best for you.
A health savings account allows you to save money on a pre-tax basis that later can be used to pay for qualified medical expenses. More commonly known as an HSA, this account has triple tax advantages:
In essence, you will never owe income taxes on the money you put into an HSA as long as you use it to pay for qualified medical expenses.
Keep in mind that if you’re 65 or older you will be taxed at standard income rates for withdrawals for expenses that don’t qualify as medical costs. If you’re under age 65, you pay a 20% penalty for non-medical withdrawals, in addition to the tax penalty.
In 2022, you can contribute:
To qualify for a health savings account, you must:
In 2022, a high deductible health plan is defined as one with:
A flexible spending account is a benefit program you get through work that lets you set aside money on a pre-tax basis to pay for health care expenses throughout the year.
More commonly known as an FSA, you generally must use the money in the account within the year that you contribute it. If you don’t, you forfeit the cash.
However, companies have the option to offer one but not both of the following exceptions to this rule:
In 2022, you can contribute whatever your employer allows to an FSA account, with a cap of $2,850.
You can use an HSA to pay for many different types of medical expenses. The IRS says that an expense that qualifies for the medical and dental expenses tax deduction generally also serves as a qualified medical expense for an HSA.
You can find a list of such expenses in Publication 502, Medical and Dental Expenses. The list is long, but some examples of common services and expenses on it include:
As with an HSA, the IRS says that an expense that qualifies for the medical and dental expenses tax deduction generally also serves as a qualified medical expense for an FSA.
As with an HSA, you also can use an FSA to pay for over-the-counter medicines. This is a change to the law that was implemented beginning in 2020.
As part of this change, you also now can use an FSA to pay for menstrual care products.
“HSA” and “FSA” are separated by just one letter, but there are major differences in terms of what these two types of health savings plans offer.
Below are some of the key similarities and differences.
Health savings accounts offer many positives:
Health savings accounts also come with some negatives:
Flexible spending accounts offer many positives:
Flexible spending accounts also come with some negatives:
With an HSA and FSA, you typically either pay for your expenses with a debit card and the funds are directly debited from your account or you pay with your own funds and submit a receipt for reimbursement.
Keep your receipts in case you must provide documentation of the medical expense you incurred. Rules may differ from employer, however, so make sure you ask your company how the process works.
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Insurance WriterChris Kissell has been a journalist for three decades and has written extensively about insurance and other personal finance topics for the past 20 years. For the last 14 years, he has been a full-time freelance writer and editor, contributing to sites such as Forbes, U.S. News and World Report, Money Talks News, Bankrate, GoBankingRates, FinanceBuzz and more. His work has also appeared on MSN, Fox Business and Yahoo Finance.
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