FSA vs HSA - Which is right for you? - YouTube

FSAs and HSAs are both accounts where you can  save tax-free money to use for health expenses,  

but which one is the best choice for you? I'll  break down the options for you. First up, an FSA  

stands for flexible spending account. There are a  few different types of FSAs but we're talking here  

about general medical flexible spending accounts.  FSAs are only available as an employer benefit.  

It is not something you can just go out and get on  your own. The maximum amount of money that you can  

put into your FSA is set by your employer but it  can't exceed the IRS maximum which currently is  

$2750 a year. An FSA works sort of like a line of  credit. You decide how much money you're gonna put  

into the FSA for the entire year and then you're  gonna pay that monthly out of your paycheck but  

you can actually spend the entire amount of that  money in January even if you've only put a small  

amount in. So for example, if you want to put in  $2,400 for the year, you're going to be paying  

$200 a month out of your paycheck but in January  if you have a $2,000 medical bill, you can use  

that entire $2,400 in January, but with an FSA if  you don't spend all of it by the end of the year  

you will lose it. Some employers do offer you  an extra two and a half months into the next  

year to spend it. Some also offer the option to  roll over $550 of the FSA into the next year but  

these options depend on your employer. If you  leave your employer in the middle of the year,  

any remaining balance that you've paid into your  FSA is lost, but on the other side, if you spent  

more than you put into your FSA and you leave in  the middle of the year, you don't have to pay back  

the rest. Now let's talk about HSAs. HSA stands  for health savings account. The main difference is  

that an HSA is only available to people who have  a qualifying high deductible health plan and what  

a qualifying plan is is defined by the IRS. When  you're signing up for your health insurance plan,  

you'll see the ones that are noted as qualifying  for an HSA. The maximum amount of money that you  

can put into an HSA is $3,600 for an individual  or $7,200 for a family. Unlike an FSA, with an  

HSA you can only spend the money that you have in  the account at the time, so with that example of  

$2,400 for the year and $200 a month going into  it... In January, you can only spend that $200 that  

you've already put in your account. Some employers  do offer an HSA that they provide themselves  

but you are also able to open up HSAs at a bank,  a credit union, or an investment firm. With an HSA  

you can also change your contribution amounts at  any time through the year, as long as you're not  

exceeding those maximums. The big difference  with the HSAs is that money is yours forever  

and you can use that money to pay for medical  expenses at any time after you've opened the  

account. And after age 65, you can use the money  in the HSA for non-medical expenses as well,  

but if you use it for non-medical expenses you  will have to pay income taxes on that money. You  

can actually have investments inside of your HSAs  as well so you could have stocks or mutual funds  

and some people do use it for long-term  savings and it really is one of the best  

long-term savings account types available. With  an HSA you put the money in tax-free and then  

you take it out tax-free as long as you use it  for medical expenses. When you compare that to  

retirement accounts, all retirement accounts  you either pay taxes when you're putting it in,  

with a Roth, or you pay taxes when you're taking  it out, with the traditional IRA or 401k, so you  

can see how an HSA can actually be an excellent  retirement savings, not just for medical.  

Both HSAs and FSAs often come with a debit card  that you can use to pay for your medical expenses.  

You can usually get reimbursements as well if  you pay for the medical expense in another way  

then you just turn it in to get a reimbursement  from the account. For both types of accounts,  

you should hang on to your receipts so you  can show that you paid all the money towards  

medical expenses. The qualifying medical expenses  that you can spend money on from the accounts is  

basically the same for both types of accounts. It  includes things like prescriptions medical care,  

including co-pays and co-insurance, eye care  including glasses, contacts, and contact solution,  

dental expenses, and there were some new items  added in 2020. These new changes are permanent  

and they include over-the-counter medications and  menstrual products now qualify for HSA and FSA  

spending. These medical expenses that you pay for  can be for you, your spouse, and your children,  

up to age 26. Keep in mind that you generally  cannot contribute to both an HSA and an FSA. There  

are some complicated rules involving this but for  the most part you can only do one or the other.  

Both FSA and HSA accounts involve tax free money  but the FSA does not require you to file any extra  

tax forms. The HSA on the other hand you do have  to file an extra form with your tax return that  

explains how much money you put into the HSA and  how much money you took out during the year. Okay,  

so now you know the differences between HSAs  and FSAs, so which one should you sign up for?  

If you're signing up for a health insurance plan  that qualifies for an HSA, I think you absolutely  

should sign up for an HSA and, if at all possible,  you should put the maximum amount of money you can  

into it. HSAs really are the best deal around.  They're great for paying your medical expenses  

but they're even better for saving for retirement.  If you don't qualify for an HSA but your employer  

offers an FSA, you might want to consider  signing up for it, but you should only sign  

up for it if you do expect to have some medical  expenses through the year. If you're the sort of  

person that really just doesn't have many medical  expenses, it's not worth signing up for an FSA  

because you could lose that money. Personally,  my family always has a fair amount of medical  

expenses so we generally max out our FSA and we  have no trouble spending it through the year.  

If we did have any extra money, we have four  people in glasses so we could always buy  

a spare pair of glasses at the end of the  year. I hope this was helpful. Next up,  

check out my video about mistakes to avoid  when you're signing up for your health plan.