Understanding HRA vs HSA: What's the Difference?

When it comes to managing your healthcare expenses, it's essential to understand the difference between an HRA and an HSA. Both are tax-advantaged accounts that can help you save money on medical costs, but they have some key differences.

Health Reimbursement Arrangement (HRA) and Health Savings Account (HSA) are both popular tools that allow individuals to save money for medical expenses tax-free. Here's a breakdown of the main differences between the two:

HRA (Health Reimbursement Arrangement)

• Employer-funded account
• Employer decides on the contribution amount
• Unused funds may roll over from year to year
• Not portable if you change jobs

HSA (Health Savings Account)

• Individual or employer-funded account
• Contributions are tax-deductible
• Portable and stays with you even if you change jobs
• Can only be used with a high-deductible health plan (HDHP)

While both HRA and HSA offer tax advantages, choosing the right option depends on your specific healthcare needs and employment situation. If you have a choice between the two, consider factors like portability, contribution limits, and eligibility requirements.

Understanding the distinction between an HRA and an HSA is vital for anyone navigating healthcare costs. These accounts can provide significant tax benefits, yet they operate quite differently.

HRA (Health Reimbursement Arrangement)

• Funded solely by your employer.
• Your employer determines the amount contributed on your behalf.
• Any unused money typically rolls over to the following year, giving you more time to use it.
• This account is not owned by you, meaning it ends when you leave the job.

HSA (Health Savings Account)

• Can be funded by you or your employer.
• Contributions are tax-deductible and can lower your taxable income.
• This account is your personal asset, which you can take with you when changing jobs.
• It's specifically paired with a high-deductible health plan (HDHP), making it essential to confirm your eligibility.

Ultimately, choosing between an HRA and an HSA should reflect your healthcare usage and financial goals. Important considerations include who funds the account, how the funds can be used, and your job stability.