Open enrollment is complicated enough with insurance jargon, what seems like a million plans, and those heart-stopping prices. And now, you’re supposed to figure out whether an HSA or FSA deserves a chunk of your paycheck.
Both accounts let you set aside tax-advantaged money for eligible healthcare expenses. The biggest difference lies in what happens to your money if you don’t spend it.
HSAs are all about the long game
A health savings account (HSA) is yours to keep. Unused funds roll over indefinitely, the account follows you if you switch jobs, and you may even be able to invest your savings.
And the tax perks aren’t too shabby, either. Contributions can lower your taxable income, earnings grow tax-free, and withdrawals for qualified medical expenses are federally tax-free. Three tax breaks from the IRS? We were suspicious, too!
Of course, there’s a reason the IRS is being this generous. To contribute to an HSA, you need an HSA-eligible high-deductible health plan (HDHP). Starting in 2026, certain Bronze and Catastrophic plans on the ACA Marketplace qualify, too.
For 2027, you can contribute up to $4,500 with self-only coverage or $9,000 with family coverage, including employer contributions. If you’re 55 or older, you can toss in another $1,000.
Traditional HSA-eligible HDHPs also have some requirements. For 2027, minimum deductibles are $1,750 for individuals and $3,500 for families, with out-of-pocket limits of $8,700 and $17,400, respectively.
But one thing to keep in mind is that your HSA isn’t a credit card. If you’ve only saved $200 and get slapped with a $1,000 medical bill, you don’t magically have $800 more to spend. You can usually only spend what’s already in the account.
But there’s an option that could help you go ahead and pay that $1,000 bill if you’ve only managed to save $200.
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FSAs give you more access but a shorter time frame
A flexible spending account (FSA) works a little differently. You set aside pretax money through your employer to pay eligible healthcare expenses – no HDHP required.
The IRS sets a yearly cap on how much you can contribute to an FSA through salary reductions. For 2027, that limit is $3,500, up from $3,400 in 2026. Your employer can also set a lower limit than the IRS maximum.
Here’s where FSAs have an advantage. Your entire annual election is usually available from day one, even if you’ve barely contributed. So, if you elect $2,000 and need a $1,500 dental procedure in January, you typically don’t have to wait until you’ve saved up enough.
It sounds pretty great until you realize there’s a reason they call these accounts flexible instead of forever. FSAs usually have use-it-or-lose-it rules. Your employer may allow a limited carryover. For 2027, that’s up to $700 from a 2027 plan year into 2028. (For leftover 2026 funds rolling into 2027, the cap is $680.) Or it may give you up to 2.5 extra months to spend leftover funds instead. Employers aren’t required to offer either option.
Go back to that $2,000 you set aside. If you only spent $1,200, some or all of that remaining $800 could disappear. Congratulations, you saved on taxes. But you also lost $800.
Which account deserves a cut of your paycheck?
If you’re eligible for an HSA and want to build savings for future medical bills, the rollover feature is a pretty big selling point. Your money doesn’t have an expiration date.
On the other hand, an FSA may make sense if your employer offers one and you can reasonably predict your expenses. Whether you spend it on regular prescriptions, recurring appointments, or the dental work you’ve been putting off, you might appreciate having the money available upfront.
Can you have both? Well, it depends. Having a traditional, general-purpose FSA usually makes you ineligible to contribute to an HSA. That includes your spouse’s FSA if it can reimburse your expenses, even if you never use it. However, a limited-purpose FSA that covers dental and vision expenses can generally work alongside an HSA. And no, you can’t get tax-free reimbursement from both accounts for the same expense.
Before enrolling, check your eligibility, estimate your medical expenses, and find out what happens to leftover FSA funds. Having your savings disappear because of a missed deadline isn’t exactly what you signed up for.
