What is the difference between a health savings account&a flexible spending account?

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Health savings accounts (HSAs) and flexible spending accounts (FSAs) are ways to put money aside for future heath care costs. Both provide tax advantages, but the qualifications and functions of these accounts are significant.

Time Frame

The most significant difference between HSAs and FSAs is that FSA funds expire at the end of the year, meaning if you do not use it, you lose it. With an HSA, you can carry over excess funds for future years.

Eligiblity

To contribute to an FSA, you must be employed by a company that offers one. To contribute to an HSA, you must have a high-deductible health insurance plan.

Investment

When you contribute money to an HSA, you can invest the money so that it grows until you need it. You cannot invest money you put in your FSA.

Contribution Limits

The amounts you can contribute to the plans changes each year for inflation. For 2010, you can put up to $3,050 in an HSA if you are single or $6,150 if you have a family plan. The limit for an FSA is that you can only contribute $5,000 ($2,500 if your filing status is married filing separately).

Withdrawals

You can withdraw money from your HSA for non-medical purposes. If you are under age 65, you must pay a 10 percent penalty and include the amount of the withdrawal on your income taxes. If you are 65 or older, you can withdraw the money penalty-free but the money is taxed. You cannot withdraw money from your FSA for non-medical purposes.

Source:

Internal Revenue Service: Publication 969

Health Equity: What is an Flexible Spending Account?

CCH Human Resources Management: IRS Announces 2010 HSA Limits

Kiplinger: Health Savings Account Answers

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What is the difference between a health savings account&a flexible spending account?

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