How Does FSA and HSA Work in the Same Year?

Many individuals might wonder how the Flexible Spending Account (FSA) and Health Savings Account (HSA) work together in the same year. These two accounts can complement each other but have different rules and benefits to consider. Here's how they can work alongside each other:

Flexible Spending Account (FSA):

• An FSA is typically offered by employers and allows employees to contribute pre-tax dollars to pay for qualified medical expenses.
• Contributions to an FSA are use-it-or-lose-it, meaning the funds must be used by the end of the plan year or a grace period determined by the employer.
• FSAs can cover expenses like copayments, deductibles, and eligible over-the-counter medications.
• Some FSAs may offer a carryover option up to a certain amount or a grace period to spend unused funds from the previous year.

Health Savings Account (HSA):

• An HSA is available to individuals enrolled in a high-deductible health plan and allows for tax-deductible contributions to pay for qualified medical expenses.
• Contributions to an HSA roll over from year to year and can earn interest or be invested for potential growth.
• HSAs cover a wide range of medical expenses, including some not typically covered by insurance, such as dental and vision care.
• Individuals can use HSA funds for qualified expenses at any time, even if they no longer have an HDHP.

How FSA and HSA Work Together:

• If you have both an FSA and HSA in the same year, you can use your FSA funds for expenses not covered by your HDHP until you meet your deductible.
• Once you've met the deductible, you can start using your HSA funds for qualified medical expenses while still utilizing your FSA for other eligible costs.
• Be mindful of the rules regarding eligible expenses for each account to maximize your tax savings and benefits.

Understanding how Flexible Spending Accounts (FSA) and Health Savings Accounts (HSA) work together can seem complicated, but knowing the basics can help you optimize your healthcare expenses in the same year. With an FSA, you enjoy tax-free contributions, while an HSA offers the flexibility of tax-deductible savings that can grow over time.