With the rising cost of healthcare, more families are looking for ways to save money without sacrificing quality of care. HSAs and FSAs are two ways to do that. Both accounts allow you to save and spend money for health-related expenses in a tax-advantaged way. 

While these accounts have a few things in common and can be used for many of the same expenses, they also have some important differences. We’ll cover these two account types, their key differences, and how to decide which is better for you.

Key Takeaways

• In 2026, HSA contribution limits are $4,400 (self-only) and $8,750 (family); HDHPs must have minimum deductibles of $1,700 (self-only) and $3,400 (family) with out-of-pocket maximums of $8,500 and $17,000. IRS
• FSAs allow up to $3,400 in 2026. FSAs generally must be spent within the plan year. IRS Plans that permit carryovers can allow up to $680 to move to the next plan year, or a 2.5-month grace period, not both. IRS+1
• HSA balances carry over every year and can be invested;
• HSA non-medical withdrawals are taxable income plus a 20% penalty before age 65. After 65, the penalty is waived but income tax still applies on non-medical withdrawals.

What are HSAs and FSAs?

HSAs and FSAs are two types of tax-advantaged spending accounts specifically designed for healthcare expenses. Let’s first briefly define each of these accounts so you understand how they work.

What is a Flexible Spending Account (FSA)?

A flexible spending account (FSA), sometimes called a flexible spending arrangement, is a benefit offered by many  employers that allows you to save pre-tax money to use for healthcare expenses. Anyone is eligible for an FSA, as long as their employer offers one.

FSAs have a use-it-or-lose-it feature, meaning you can only use the money in your account for a limited amount of time. At the end of the year, your employer can allow you to have two and a half more months to spend your funds or can allow you to carry over up to $660 for the 2025 plan year, set to increase to  $680 in 2026.

For example, if you contributed $1,000 in 2025, you may have until mid-March to spend your remaining funds unless your employer allows you to roll some of it over.

The money you deposit into your FSA is generally controlled by your employer. You can’t invest the money to earn a higher return, nor can you choose to withdraw the money to use for anything other than qualified medical expenses. 

FSA Contribution limits for 2026

In 2026, each employee can contribute up to $3,400 to their FSA. While employers can also contribute on behalf of their employees, most don’t.

There’s also a type of FSA called a Dependent Care FSA, which can be used for childcare or adult dependent care expenses rather than healthcare. DCFSAs allow for contributions of up to $5,000 per household in 2025, set to increase to $7,500 in 2026.

What is a Health Savings Account (HSA)?

A health savings account (HSA) allows you to save pre-tax dollars to use for healthcare expenses. 

To qualify to use an HSA, you must be enrolled in a high-deductible health plan (HDHP), which is defined in 2026 as any account with a deductible of $1,700 or higher for an individual plan or $3,400 or higher for a family plan, and that has an out-of-pocket maximum of no more than $8,500 for an individual plan and $17,000 for a family plan. You also cannot be enrolled in Medicare, not be claimed as a dependent, and have no other disqualifying coverage.

Unlike with FSAs, your employer doesn’t have to offer an HSA for you to contribute to one. While many employers do offer HSAs, anyone with a HDHP can set one up on their own. You can open an HSA through many different brokerage firms and other HSA providers.

You can technically withdraw the money in your HSA to use for purposes other than qualified medical expenses.  Non-medical withdrawals will be subject to income taxes and also subject to additional 20% penalty until age 65.

HSA Contribution Limits for 2026

In 2026, you can contribute up to $4,400 to an HSA if you have an individual health insurance plan, and up to $8,750 if you have a family plan. HSA Participants over the age of 55 can contribute an extra $1,000 a year for catch-up purposes.

Two lesser-known funding opportunities are worth considering:

• An HSA can be funded from a deductible IRA account balance.  You can do this once in your lifetime.
• Adult children covered by parents HDHP but not claimed as a dependent on anyone else’s tax return may be permitted to make their own HSA contributions independent of their parents HSA contributions.

Differences Between FSAs and HSAs

There are some clear similarities between FSAs and HSAs, including the types of medical expenses you can use them for. However, they have some clear differences, which you can see in the table below.

Tax Benefits: HSA vs. FSA

HSAs and FSAs have similar tax advantages. Both allow for pre-tax contributions, which helps reduce your tax bill and save money on medical expenses. However, HSAs have an even greater tax benefit known as the triple tax advantage. Here’s what that looks like:

1. Tax-free contributions: You can make pre-tax or tax-deductible contributions, up to the contribution limit each year.
2. Tax-free growth: You can invest the money in your HSA, and all of your investment growth will be tax-free.
3. Tax-free withdrawals: As long as you spend the money on qualified medical expenses, you won’t pay taxes on your HSA withdrawals.

With this triple tax advantage, some people choose to use their HSA as a long-term investment vehicle rather than to pay for their medical expenses each year. Additionally, non-medical HSA withdrawals after the age of 65 are treated as taxable income, but are not subject to the 20% penalty. As a result, there’s the potential to use this account as a supplemental retirement account. 

Pros and Cons of FSAs and HSAs 

Both FSAs and HSAs have some pros and cons to consider before you open one.

FSA Pros and Cons

HSA Pros and Cons 

HSA vs. FSA: Which is Better?

While both HSAs and FSAs have some key benefits, HSAs are generally a better option for quite a few key reasons. You’ll have ownership over the funds and can carry you with them from year to year and from job to job. You can choose to use it for immediate medical expenses or invest it for the long term – the triple tax advantage makes the second option attractive.

FSAs can also be a great option, and you should consider taking advantage of one if it’s available and you don’t have a HDHP to qualify for an HSA. Those with high predictable annual costs and more expensive health plans may prefer an FSA to avoid the shock of HDHP deductibles. The tax advantage of an FSA makes it a worthwhile account, as long as you make sure to use the money by the deadline. But with less ownership and flexibility, it’s not as appealing as the HSA.

Who is each account best for?

FSA

• Employees without an HSA-qualified HDHP who want pre-tax dollars for near-term health costs.
• People who can reasonably forecast expenses each plan year and will use most or all of the balance.

HSA

• Employees enrolled in an HSA-qualified HDHP who want triple tax advantages and long-term savings potential.
• Savers who value rollover, portability, and optional investing of balances. 

If you’re thinking about an HSA vs FSA for this year’s enrollment, set up a complimentary consultation today to speak to an advisor about your financial situation and get personalized advice about your healthcare financial planning.

FAQs about FSAs and HSAs

What is an FSA?
An employer-sponsored account that lets you set aside pre-tax dollars for eligible healthcare expenses. Most plans are “use-it-or-lose-it,” with either a carryover up to $660 (2025 plan year) | $680 (2026 plan year) or a 2.5-month grace period. 

What is an HSA?
A tax-advantaged account you own that you can open if you are covered by an HSA-qualified HDHP. Funds roll over every year and can be invested. 

Who is eligible to contribute to an HSA?
You must have an HDHP, be ineligible for Medicare, not be claimed as a dependent, and have no other disqualifying coverage.

How much can I contribute in 2026?
FSA: $3,400. HSA: $4,400 single or $8,750 family; plus a $1,000 catch-up at 55+.

How much can I contribute in 2025?
FSA: $3,300. HSA: $4,300 single or $8,550 family; plus a $1,000 catch-up at 55+.

Do FSA funds roll over?
Only if your employer offers carryover, up to $680 for the 2026 plan year, or a 2.5-month grace period. Plans cannot offer both.

Can I invest the money?
FSA: no. HSA: yes, and growth is tax-free when used for qualified medical expenses. 

What happens if I use HSA money for non-medical expenses?
Before 65, you owe income tax plus a 20% penalty. After 65, you owe income tax but no penalty. IRS

Which account is better?
It depends on your unique situation. An HSA because of ownership, rollover, investment, and triple tax benefits. FSA can still be a good fit if you do not have an HDHP and can spend the balance each year.

Content in this material is for general information only and not intended to provide specific advice or recommendations for any individual.

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