HSA vs. FSA??

[newelljack]

I keep reading threads about HSAs on here but nobody mentions the FSA...is there a reason/difference?

DW and I have a flexible spending account with the employer that we used to be careful not to over-fund as it was "use it or lose it" money. But it looks like the Affordable Care Act allows for some next-year spending. It's pre-tax money that we can spend on co-pays, prescriptions, other doctor bills, etc. So, is there a difference between this and an HSA that you all discuss?

[boarder42]

yeah a huge difference.

1. the HSA money never expires
2. the HSA money can be invested.
3. HSA max is 6750 per year for a married couple
4. if you have an FSA its highly unlikely you can also contribute to an HSA.
5. An HSA is the only triple tax free account - tax free in, tax free on earnings, and tax free out if used for healthcare
6. an HSA acts as a Trad IRA if used for non health purposes once you/re 59.5 

FSA's arent awful if you plan accordingly and USE all the money you get the first 2 benefits of an HSA tax free in and tax free out.  but the HSA is just so much more flexible.

[rubybeth]

Everything boarder42 wrote, plus:

1) You can only contribute to an HSA if you have a high deductible health plan (HDHP) that is compatibl with an HSA, and these HDHPs can save healthy people a lot of money in the long run (lower premiums and save as though you will have health problems and max out the HSA each year, then never spend that money on health reimbursements).
2) Some people save up all their reimbursable expenses for their HSA and then submit for reimbursement after they retire. DH and I have discussed doing this so we'd get a big cash payout from the HSA with no tax implication.
3) FSA plans are typically use it or lose it (or until like March of the next year to submit for the previous calendar year), and it can be too complicated to try to use unless you have very predictable health-related expenses.

[rantk81]

Even more info:

If you are doing an HSA in a plan year, you can still do an FSA too.

But the FSA is different in this case, and is called a "Limited Purpose FSA" which has additional restrictions.

If you don't meet your health care plan deductible in the year, you can only use finds from a LP-FSA for vision and dental expenses.

If you have already met your health care plan deductible in the year, then you can use LP-FSA funds for medical expenses (e.g. even non-dental and non-vision) for costs in excess of your deductible.'

Essentially, if you don't know ahead of time that you are definitely going to hit your deductible, you should be very careful about putting any money into a LP-FSA (unless you know you are going to have vision and/or dental expenses for which to use the LP-FSA.)

(Disclaimer: I'm not a tax advisor or specialist... Above is just my understanding of the law as it was explained to me by my employer's HR dept.)

[Waterbug]

My understanding is an FSA can also be used for childcare costs and we are thinking about signing up for it through my husband's employer to cover daycare costs.  His plan allows for 5k toward daycare. Anyone familiar with this?

I have the option of an HSA through my employer but have always gone with the traditional plan by default. I am generally healthy and do not go to the doctor much. The exception would be pregnancy/childbirth. We would like to have another child but don't know when it will happen so I am hesitant to make the switch but will definitely look into it now. Many people here seem to be in favor of using an HSA.

[boarder42]

Yeah thats a dependent care FSA that i did not go into as this was an HSA comparison but that is correct as well.

[Nothlit]

6. an HSA acts as a Trad IRA if used for non health purposes once you/re 59.5 

Minor nitpick: it's 65 for an HSA, not 59.5

[I'm a red panda]

Even more info:

If you are doing an HSA in a plan year, you can still do an FSA too.

But the FSA is different in this case, and is called a "Limited Purpose FSA" which has additional restrictions.

If you don't meet your health care plan deductible in the year, you can only use finds from a LP-FSA for vision and dental expenses.

If you have already met your health care plan deductible in the year, then you can use LP-FSA funds for medical expenses (e.g. even non-dental and non-vision) for costs in excess of your deductible.'

Essentially, if you don't know ahead of time that you are definitely going to hit your deductible, you should be very careful about putting any money into a LP-FSA (unless you know you are going to have vision and/or dental expenses for which to use the LP-FSA.)

(Disclaimer: I'm not a tax advisor or specialist... Above is just my understanding of the law as it was explained to me by my employer's HR dept.)

Be very careful that it is actually a limited FSA.  You can't just self limit what you spend your FSA on if you OR your spouse has an HSA.

My spouse has a HDHP and an HSA. Therefore, I'm ineligible for a (regular) FSA. If I chose to contribute to one (since my work does not offer a limited FSA) it would make him ineligible for the HSA, as the FSA is treated as coverage (which is ridiculous, IMO).

So be really careful if you are dealing with contributing to both.

[newelljack]

My understanding is an FSA can also be used for childcare costs and we are thinking about signing up for it through my husband's employer to cover daycare costs.  His plan allows for 5k toward daycare. Anyone familiar with this?

I have the option of an HSA through my employer but have always gone with the traditional plan by default. I am generally healthy and do not go to the doctor much. The exception would be pregnancy/childbirth. We would like to have another child but don't know when it will happen so I am hesitant to make the switch but will definitely look into it now. Many people here seem to be in favor of using an HSA.

We have both. $5,000 is the federal max, not just your DH's employer. But it is my understanding that once you use that account, you can't also deduct the expenses on your tax returns (since it was pre-tax already).

Thanks for the help on explaining the HSA. I have a much better grasp of it now!

[Need2Save]

Just to add a couple more thoughts:

Employers may now allow you to carryover up to $500 in health care FSA money to the next year, or they can allow for a 2.5 month grace period to use up last year's money but they can't do both. In fact neither are required.

As mentioned above, a Limited Purpose or Limited Use FSA is only used  for dental and vision expenses.  It behaves just like a regular health-care FSA in all other ways, like the use-it-or-lose-it rule but allows you to set aside even more than the $3,350 or $6,750 HSA contribution limits.  You just can't use it for medical expenses like Rx, copays and coinsurance.  Not all companies will offer this. 

Dependent Care FSA limit is up to $5,000 and isn't tied to medical at all.  Must be used for children under the age of 13 so both parents can work or go to school, or for other adult dependents in limited cases when they can't care for themselves.

You can have both a Dependent Care FSA and an HSA or both a Dependent Care FSA and a Health Care FSA.

We use both an HSA (up to the full annual maximum) and also a smaller amount in LPFSA for just dental and vision expenses.    The reason that HSAs are discussed so much are the superior features of: higher contribution limits, the triple tax savings, the ability to carryover for many years, and the ability to pull out for any reason with just normal income taxes after age 65.  If given a choice, the HSA is by far the most flexible but you also must enroll in a higher deductible health plan to have access to it. 

[MMMarbleheader]

To add in another acronym, I have an HRA that work deposits $1500 into each year to pay out of pocket expenses and it carries over to the next year.

[Need2Save]

To add in another acronym, I have an HRA that work deposits $1500 into each year to pay out of pocket expenses and it carries over to the next year.

Do you find that you are more inspired or eager to find something to use that $1,500 on each year knowing that you won't take it with you if/when you leave?  When we considered implmenting an HRA vs. HSA at my company, I fought hard to pick the option that is more employee friendly.  The Health Reimbursement Account (HRA) is more employer friendly since they really only have to pay it if you use it.  Just curious what your experience has been and if it effects your behaviour or not.  Like you go to the doctor more easily because it would be covered with these funds.  No judgement.  Honestly curious what your experience has been.  cheers!

[boarder42]

To add in another acronym, I have an HRA that work deposits $1500 into each year to pay out of pocket expenses and it carries over to the next year.

Do you find that you are more inspired or eager to find something to use that $1,500 on each year knowing that you won't take it with you if/when you leave?  When we considered implmenting an HRA vs. HSA at my company, I fought hard to pick the option that is more employee friendly.  The Health Reimbursement Account (HRA) is more employer friendly since they really only have to pay it if you use it.  Just curious what your experience has been and if it effects your behaviour or not.  Like you go to the doctor more easily because it would be covered with these funds.  No judgement.  Honestly curious what your experience has been.  cheers!

sucks at my firm we cant have an HSA b/c of some complication with S-corp ESOPs and our HRA is just under qualifying for me to open an independent HSA by 200 dollars.

[MMMarbleheader]

To add in another acronym, I have an HRA that work deposits $1500 into each year to pay out of pocket expenses and it carries over to the next year.

Do you find that you are more inspired or eager to find something to use that $1,500 on each year knowing that you won't take it with you if/when you leave?  When we considered implmenting an HRA vs. HSA at my company, I fought hard to pick the option that is more employee friendly.  The Health Reimbursement Account (HRA) is more employer friendly since they really only have to pay it if you use it.  Just curious what your experience has been and if it effects your behaviour or not.  Like you go to the doctor more easily because it would be covered with these funds.  No judgement.  Honestly curious what your experience has been.  cheers!

I like the HRA because the plan has lower deductibles than the HDHP needs to qualify for an HSA.