(NewsNation) — Health care is expensive.
The good news is that health insurance plans and employers often offer their workers ways to help defray the costs of treatment, either through a Health Savings Account or a Flexible Spending Account.
The bad news is that workers often must use the dollars in those accounts by a certain date or risk losing the funds. But when do the funds expire?
Here’s what to know about each type of account.
Both Health Savings Accounts, or HSAs, and Flexible Spending Accounts, known as FSAs, are tax-free savings accounts into which employees deposit a portion of their paychecks. Each account is meant to cover health care costs that the employee’s insurance plan may not cover.
What is the difference between an FSA and an HSA?
According to MetLife, FSAs are usually offered as an optional employee benefit. HSAs are available only if the employee chooses a high-deductible health plan.
An employee’s FSA is a special account into which they and their employer can contribute pre-tax dollars that can then be used to cover out-of-pocket health costs. The employee submits a claim and proof of the medical cost via their employer, and the FSA provider reimburses the employee for those payments.
Workers in 2025 can contribute up to $3,300 per year to an FSA, but these funds typically must be used by the end of the calendar year. An employee also loses the balance in the account if they leave their job.
Maximize health savings: The tax benefits of HSAs and FSAs
According to Healthcare.gov, there are several routes that employers can take to help employees who still have a balance in their accounts as of December 31.
The employer can utilize a “grace period” of up to 2 1/2 months, during which the employee can still use the money. They can also allow the worker to carry over up to $660 per year to use the following year.
Both avenues are completely at the employer’s discretion.
What’s better for me – an HSA or FSA?
HSAs are, ironically, more flexible than FSAs.
Like FSAs, HSAs are accounts into which an employee and their employer can deposit pre-tax funds to cover out-of-pocket health care expenses. Those expenses include the high deductible of the worker’s health plan, according to Healthcare.gov.
Unlike FSAs, however, the balance of an HSA rolls over into the next year, allowing the employee to build up reserves for treatment, medications and medical equipment they may need at a later date.
An HSA also earns interest on that balance, and the account is portable, meaning the employee takes it with them if they leave their job.
HSA funds never expire, meaning the owner of the account can use the money even after they retire from the workforce.
