Most HSA plans require a minimum balance to invest your HSA funds, which varies from employer to employer. Investing and Using HSA FundsĪnother key difference between an FSA and an HSA is the ability to invest your HSA funds. Your unused HSA funds are eligible to roll over each year without any limitations or restrictions. In the event you do not use your funds before the end of your plan year, you will not lose them. Unlike FSAs, where you have a restriction on the time you can use your funds or a limited amount to roll over, an HSA is different.
For example, you can make 2021 HSA contributions until April 15, 2022, which is the tax deadline for your federal tax return. You or your employer can contribute in the current plan year or up to the due date of your tax return. The IRS allows you more time to contribute to an HSA account than an FSA account. These limits include both employee and employer contributions. 2021 Contribution Limitsįor 2021, you can contribute up to $3,600 if you have self-only HDHP coverage ($7,200 for family HDHP coverage). You qualify for the tax deduction whether you elect to itemize your deductions or not.īut keep in mind, the IRS limits the amount you can contribute to an HSA. However, if you set up your HSA account on your own, you can deduct your HSA contributions on your federal income tax return. If you have an employer-sponsored HSA account, the amounts you contribute are not subject to payroll or income taxes. You can also establish an HSA either independently or with your employer. Unlike an FSA, you own your HSA account and therefore it is portable, which means that if you separate from your employer, you can take your HSA funds with you. For 2021, the minimum deductible amount for an individual HDHP is $1,400 and $2,800 for a family plan.
Extend the grace period to up to 12 months after the plan year for both the 20 plan years.Allow you to carry over unused funds-in excess of the usual $550 limit-from both the 20 plan years to the next year, or.
In December 2020, then-President Donald Trump signed the Consolidated Appropriations Act of 2021 into law, which allows employers to alter their current FSA plans. This deadline may differ if your employer’s administrator plan does not follow a calendar year instead, you will have an additional 2.5 months following the plan’s year-end date. If your employer has this feature, you will have until March 15 of the following year to spend your FSA funds. These features include an extended grace period or a rollover provision.Īn extended grace period allows you an additional 2.5 months to spend your FSA funds. Some employers may elect one of two features that can provide some flexibility with unused funds. If you fail to do so, you will forfeit your FSA funds. The primary disadvantage is that, typically, most FSA accounts have a “use or lose it” feature, which means you need to spend all of your FSA funds before the end of the plan’s year. This means if you have a qualified medical expense of $1,500 but your FSA account does not have the entire funds to cover it, your FSA administrator will still pay the entire claim.Īnd while that is great news, there are some disadvantages to an FSA. 1 to contribute $2,400 annually with monthly pretax contributions of $200, you will have access to the entire $2,400 at the start of the year. One great advantage about an FSA is that your funds are immediately made available the day you enroll. However, the IRS does not require your employer to do so. For 2021, you can contribute up to $2,750 into a healthcare FSA and your employer may also contribute on your behalf. If you separate from your job, you would forfeit your FSA funds. It is a tax-advantaged savings account established by your employer that allows you to stash money away for yourself, your spouse or dependents.įor starters, since you can only establish an FSA with your employer, it means your employer owns your FSA account. What Is a Flexible Spending Account (FSA)?Īn FSA is a great tax savings tool to effectively pay for qualified out-of-pocket healthcare expenses.
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Here is what you need to know about an FSA and an HSA and how to determine which one may work best for you.
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