HSA vs FSA - What's the difference? - YouTube

Medical expenses add up quickly and  any way we can offset them is helpful. 

Fortunately, the government  offers two tax advantage programs: 

the Health Savings Account or the HSA and  the Flexible Spending Account or the FSA. 

While both are helpful they have many differences and most people can't carry both accounts. 

In this video, I break down  the Health Savings Account 

and the Flexible Spending  Account so that you understand 

the differences and can tell  which one is right for you. 

Let's go! Hey! this is Carlos with  

Influential Finance and on this channel, I make weekly videos to help you improve 

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Let's start by talking about  the Health Savings Account. 

An HSA or the Health savings  account is a tax advantaged 

account for individuals and families with a high deductible insurance plan.  

Not just any high deductible insurance plan is eligible though.  

The IRS determines which plans are eligible  

each year, so always check with your insurance company,  

Employer, or your HR department to find out. High deductible  

insurance plans typically have lower premiums which is a great advantage for 

some people. However, the  out-of-pocket expenses required 

before the insurance begins to cover can make a big difference in your budget.  

A Health Savings Account is money that you contribute  

pre-tax to use on eligible health expenses. The money also grows tax-free,  

and you don't have to pay taxes on withdrawals if you use the funds for 

eligible expenses. You can open a Health  

Savings Account through your employer, if they offer it, or on your own if  

they don't and you have an eligible plan. You can open a Health Savings Account at a 

bank at a credit union or a broker of your choice. If you want to see a video that dives deeper  

into HSAs, check out the  

video linked in the description below. Now that we've gone over what an HSA is,  

let's talk about the Flexible Spending Account. 

A Flexible Spending Account is  another tax advantaged account 

for individuals and families  to help cover medical expenses. 

You don't need a high deductible  insurance plan to qualify, 

but you can only get the  plan through your employer. 

You can't open one yourself like the HSA. The FSA funds come out of your paycheck pre-tax, 

which lowers your tax liability.  For example, if your paycheck 

is a thousand dollars, but you  contribute $200 to your FSA, 

you only pay taxes on $800, not the full $1,000 that you earned. Flexible  

Spending Account funds don't roll over each year. You must use them or lose them. 

So, some employers offer the  option to roll your funds over, 

but the IRS allows a maximum  of $550 to be rolled over. 

You don't pay taxes on withdrawals if  they're used for eligible medical expenses. 

Now that we've talked about both  the HSA and the FSA, let's go over 

some of the similarities of the two.  First, contributions are pre-tax, 

which will lower your tax  liability. Second, your withdrawals 

are tax-free if used on eligible  medical expenses. Third, both plans 

can be offered through your employer, and fourth, 

money should be used on  medical expenses not covered 

by insurance and other eligible  out-of-pocket expenses. 

There are many differences between  the two that we can discuss, 

so I'll try to stick to the top  four. First, the contribution limits 

are different. With an HSA you can  contribute up to $3,600 for an individual 

while an FSA the contribution  limit is $2,750 for 2021. 

Second, the HSA contributions  roll over from year to year 

while in most cases, the FSA contributions  must be used by the end of the year. 

Third, with an HSA your money  can be invested and grow 

Exponentially, while with an  FSA your money does not grow 

or earn interest. And lastly,  with an HSA you need a qualifying 

high deductible insurance plan in in  order to be able to open an account, 

which is not the case with the  FSA. One thing to keep in mind 

is that you can’t have both an HSA and  an FSA. It's either one or the other. 

The only exception is if your  employer offers a limited-purpose FSA 

which is not common at all.  So, which one is right for you? 

Choosing between the Health  Savings Account and the 

Flexible Spending Account is a personal decision. Initially, it comes down to what your employer  

offers if you're employed. If you're a self-employed,  

your only option is the HSA, if you find an eligible high deductible  

health insurance plan through the marketplace. If you have the option for both accounts,  

consider the following. What do you expect your  

health expenses to be? If you and your family members are relatively healthy, taking the 

high deductible health insurance  plan and the HSA keeps your 

premiums lower, and allows you  to put money aside tax-free, 

for your medical expenses. You can  roll the funds over year after year 

and even use the money in retirement  if you never get to use it 

throughout your working life, all  while lowering your tax liability. 

If you have higher health  expenses you may want to choose a 

health insurance plan with a higher  premium, but a lower deductible. 

If you don't take a high  deductible health insurance plan, 

then you aren't eligible for  a Health Savings Account, 

but you can get some tax  benefits by electing an FSA, 

if your employer offers it. 

That pretty much wraps it up  for this video but if you'd like 

to watch a video that dives  deeper into HSAs overall 

check out the video right up  here and as always make sure you 

click on my face right here to  subscribe for more weekly videos. 

That's been it, I'll see you in the next one! Peace.