Starting a new job is exciting! What's not exciting (for most people, anyway) is to figure out what type of insurance coverage you need. To help you make a decision, we've listed some of the pros and cons of FSA and HSA plans.
How does FSA Work?
Flexible spending accounts (FSA) are available through your employer. There are several types, including general purpose, limited-purpose, and post-deductible FSAs. They all function under the same premise of setting aside tax-free funds to use each year on medical expenses. With FSA, the funds are "use it or lose it." Some plans offer a grace period or to roll $500 over to the next year, but otherwise, if you don't spend the funds they're gone for good. You may also use the money on your spouse or children age 26 and under.
How does HSA Work?
Health savings accounts (HSA) are available with a high-deductible health plan (HDHP). These plans offer a higher deductible in exchange for a lower monthly premium, so the HSA account helps mitigate this high deductible. Unlike FSA funds, HSA funds roll over year after year. The account also collects interest over time, and remains even if you change jobs. Similarly to FSA accounts, HSAs are tax-free and can be used on your spouse and children.
For more information on FSA/HSA compatibility, read Can You Have FSA and HSA at the Same Time? Also check out What's the Difference between FSA and HSA? to delve deeper into the distinctions between the two.
Pros of FSA:
- All employees are eligible regardless of whether they have insurance
- Can use funds on childcare expenses as well as medical
- Can access your entire contribution (amount of money pledged) throughout the year—which comes in handy if you expect high medical expenses at the start of the year
Cons of FSA:
- Withdrawals are not allowed
- Self-employed people are ineligible
- Lower contribution limit than HSA
- Unused funds are lost at the end of the year
- Does not earn interest
- Lose the account if you change jobs
- Cannot change contribution amount during the year
Pros of HSA:
- Self-employed people are eligible
- Higher contribution limit than FSA
- Unused contribution rolls over to the next year
- Earns tax-free interest
- Account remains even if you change jobs
- Can change your contribution during the year
Cons of HSA:
- Only available with HDHPs
- Withdrawals are allowed but penalized
- Can only access what you've contributed to the account so far
- Limited eligibility—If you or your spouse have a general purpose FSA, you are both ineligible for HSA regardless of your dependence status
Which is Best for Me?
While HSA certainly has fewer overall cons, its eligibility is more limited. However, it's generally worth it for being able to roll your funds over year after year and gain interest on them. But if you have young children or anticipate a lot of medical expenses at the start of the year, the FSA might be a better option for you. If your employer offers both, take a moment to think about what medical expenses you plan to incur in the next year.
Hopefully this helped clear up the pros and cons of each individual plan. Whichever one you pick, though, you can still use it to purchase prescription eyewear from SportRx! Shop all our prescription eyewear by clicking the button below.
Disclaimer: This content is provided solely for informational purposes. It is not intended as and does not constitute legal advice. The information contained herein should not be relied upon or used as a substitute for consultation with legal, accounting, tax and/or other professional advisers.