Understanding Fsa And Hsa Health Benefits

Many employers are offering these popular (and tax-friendly) healthcare benefit options to their employees. But what exactly are the differences between a Flexible Spending Arrangement (FSA) and an HSA (Health Savings Account)?
 
With an FSA, an employee determines a set dollar amount from each paycheck to be deducted for reimbursement of healthcare costs. Usually, the employer’s plan will provide some limit to this amount. The employee must use all the funds set aside in the FSA during that plan year or the funds are forfeited. 

A benefit to an FSA is that all funds are available to the employee at the beginning of the plan year. As an example, if your plan year starts June 1 and you have decided to defer $2,400 for the year to your FSA, with deductions from your paycheck throughout the year, you have access to all $2,400 immediately, regardless of the fact that the full amount has not yet been deducted from your salary.

With an HSA, you must have the money in your account at the time of the expenditure. However, the money set aside is nonforfeitable. If you do not use it from year to year, it can accumulate and your earnings will grow tax-deferred.

SARA PEAK is a freelance writer with expertise in finance and wealth management. Have a money question? E-mail us at e-mail@kentuckyliving.com.