Open enrollment season often comes with a stack of acronyms. Two of the most common—HSA (Health Savings Account) and FSA (Flexible Spending Account)—sound similar, but they work very differently.
Both accounts can help you pay for qualified medical expenses with tax advantages. The “right” choice often depends on your health plan, your cash flow, and how much flexibility you want from year to year. Below is a high-level guide to help you compare HSAs and FSAs with confidence.
Note: Tax rules are complex and can change. This overview is for education only. For official guidance, see IRS resources referenced below.
The big-picture similarity
HSAs and FSAs are both designed to help you pay for eligible healthcare costs with tax-advantaged dollars, commonly through pre-tax payroll contributions, depending on how your plan is set up.
Common qualified expenses may include deductibles, copays, prescriptions, dental and vision care, and other IRS-qualified items (plan specifics and IRS rules apply).
What's new: HSAs just became more accessible
The One Big Beautiful Bill Act (Public Law 119-21), signed July 4, 2025, made three notable changes to HSA rules. The IRS issued guidance on them in Notice 2026-05.
- Telehealth: HSA-eligible plans can now permanently cover telehealth and other remote care before you meet your deductible, without costing you HSA eligibility. This applies to plan years beginning on or after January 1, 2025.
- Bronze and catastrophic plans: Starting January 1, 2026, bronze and catastrophic plans available through an ACA Exchange are treated as HSA-compatible, even if they don't meet the standard HDHP deductible and out-of-pocket rules. This matters most for self-employed individuals and others who buy their own coverage.
- Direct primary care: Starting in 2026, enrolling in certain direct primary care arrangements no longer disqualifies you from contributing to an HSA, and qualifying monthly fees can be paid from your HSA tax-free, within IRS limits.
Rules and limits apply, and further IRS guidance may follow. (Sources: IRS Publication 969 (2025), "Health Savings Accounts and Other Tax-Favored Health Plans," IRS.gov/Pub969; IRS Notice 2026-05, December 2025.)
The biggest differences (at a glance)
Here are the decision points most people care about:
1) Eligibility: who can contribute?
HSA: You generally must be enrolled in an HSA-eligible health plan, typically a High Deductible Health Plan (HDHP) or, starting in 2026, an ACA Exchange bronze or catastrophic plan, and meet other IRS eligibility requirements.
FSA: FSAs are typically offered through an employer-sponsored benefits plan. You don't need an HDHP to participate.
Takeaway: HSAs are tied to a specific type of health plan; FSAs are tied to what your employer offers.
2) Ownership and portability: who “owns” the account?
HSA: The account is generally yours. If you change jobs or retire, your HSA typically goes with you.
FSA: The account is generally employer-sponsored. If you leave your job, you typically don’t take the FSA with you (exceptions can exist in limited situations).
Takeaway: HSAs are generally more portable; FSAs are more tied to your employment.
3) Unused funds: what happens at year-end?
HSA: Funds generally roll over from year to year.
FSA: Many FSAs have “use it or lose it” rules, though some plans may allow either a grace period or a limited rollover amount—depending on how your employer’s plan is designed.
Takeaway: If you want to build long-term savings, an HSA may offer more flexibility.
4) Contribution amounts and timing
HSA: Annual contribution limits are set by the IRS and depend on coverage type and year. Contributions may be made through payroll and/or directly by you (specific tax treatment can depend on how you contribute and your situation).
FSA: You choose an annual election during open enrollment. One distinctive feature: with many healthcare FSAs, the full annual election is generally available early in the plan year, even though contributions are deducted throughout the year.
Takeaway: FSAs can be helpful for predictable near-term expenses; HSAs can be used both near-term and long-term.
5) Investing potential
HSA: Many HSAs allow you to invest once you reach a required cash balance (varies by provider). Like any investment, values can fluctuate and returns are not guaranteed.
FSA: FSAs are generally spending accounts and are not investment accounts.
Takeaway: HSAs may have long-term growth potential if investing is available and appropriate for you.
6) Don't confuse it with a dependent care FSA
Some employers also offer a dependent care FSA (sometimes called a DCAP). Despite the similar name, it isn't for medical expenses. It helps pay for the care of a qualifying dependent, such as daycare, preschool, before- and after-school programs, summer day camp, or adult day care, so that you (and your spouse, if married) can work or look for work. Under IRS rules, a spouse who is a full-time student or unable to care for themselves may also be treated as meeting the work requirement. As well, a babysitter, nanny, or au pair (privately or through an agency) may qualify as eligible care, provided that the appropriate tax forms are filed.
Qualifying dependents generally include children under 13, and a spouse or other dependent, such as an aging parent, who is physically or mentally unable to care for themselves and lives with you for more than half the year.
Starting with the 2026 tax year, the household limit increased from $5,000 to $7,500 ($3,750 if married filing separately) under Public Law 119-21, commonly known as the One Big Beautiful Bill Act. Your employer's plan must adopt the higher limit for it to apply to you. (Source: IRS Publication 15-B (2026), "Employer's Tax Guide to Fringe Benefits.")
Takeaway: A dependent care FSA is a separate benefit for care costs, not medical bills, and it can be used alongside a health FSA or an HSA.
The “stealth retirement” angle: why some people view the HSA as powerful
An HSA may offer a "triple tax advantage" when used for qualified medical expenses:
- Contributions may be tax-deductible or made pre-tax through payroll (depending on how you contribute)
- Interest and other earnings in the account are not taxed while they remain in the HSA
- Distributions used for qualified medical expenses are tax-free
That combination is why some savers treat the HSA as a long-term planning tool—especially if they can cover current medical costs out of pocket.
(Source: IRS Publication 969 (2025), "Health Savings Accounts and Other Tax-Favored Health Plans," February 2026.)
A strategy some long-term planners consider
For individuals with strong cash flow, a commonly discussed approach looks like this:
- Contribute to the HSA (often via payroll for convenience).
- Pay current medical expenses using regular cash flow rather than spending from the HSA.
- Save receipts and supporting documentation for qualified expenses.
- Invest HSA dollars for the long term (if available and aligned with your risk tolerance and time horizon).
- Later in retirement, submit those saved receipts and request reimbursement from the HSA.
If done properly, those reimbursements can be tax-free for qualified expenses—potentially creating a source of tax-advantaged cash flow in retirement.
Important guardrails:
- You generally need careful recordkeeping (dates, amounts, proof of payment, and that expenses were qualified).
- Plan rules and IRS guidance matter.
- Investing involves risk; account values can go down as well as up.
- This strategy isn’t right for everyone—especially if cash flow is tight or medical expenses are unpredictable.
When an FSA might be the better fit
FSAs can be excellent for people who:
- Have predictable annual expenses (ongoing prescriptions, planned procedures, orthodontia, etc.).
- Value the ability to access the full elected amount early in the year.
- Prefer a straightforward “set it and spend it” approach during the plan year.
Because unused FSA dollars may be forfeited (depending on your plan’s rules), FSAs often reward more accurate planning.
When an HSA might be the better fit
HSAs can be a strong option for people who:
- Are enrolled in an HSA-eligible HDHP.
- Want funds that generally roll over and remain theirs.
- May be interested in long-term savings and potentially investing.
- Are looking for another tool to help manage healthcare costs in retirement.
A simple decision framework
If you’re not sure where to start, consider these questions:
- Am I eligible for an HSA (via an HDHP)? If not, the decision may default to an FSA (if offered).
- Do I expect higher near-term medical costs? An FSA can help with planned spending.
- Do I want flexibility and rollover potential? That points toward an HSA.
- Can I handle the deductible exposure of an HDHP? That’s a key tradeoff when considering an HSA.
Need help weighing your options?
Choosing between an HSA and an FSA is rarely just a “tax question”—it’s also about your health plan, cash flow, and long-term goals.
If you’d like a second opinion on which option may be most appropriate for your situation—or if you’re a business owner exploring whether (and how) to offer these benefits to employees—please reach out to our team. We’re happy to help you evaluate the tradeoffs and make an informed open enrollment decision.
This article is for educational purposes only and is not personalized investment, tax, or legal advice. Tax laws change and individual circumstances vary; consult a qualified tax professional or financial advisor before acting on any strategy discussed here. Investing involves risk, including possible loss of principal. Past performance does not guarantee future results. Benari Capital LLC is a registered investment adviser. Registration does not imply a certain level of skill or training.