Health spending accounts are tax-advantaged accounts you can use to pay for your medical care.
There are three types—health savings account, health reimbursement arrangement, and flexible spending account. Each has slightly different features, and works with your health insurance coverage in different ways.
Health Savings Account (HSA)
A health savings account (HSA) helps people enrolled in a high-deductible health plan save for qualifying medical expenses such as copays and deductibles.
Know the advantages:
- Tax-deductible: Savings are 100% deductible, similar to an IRA
- Tax-free: Withdrawals for qualifying medical expenses are never taxed
- Tax-deferred: Interest earnings accumulate tax-deferred and remain tax-free if used to pay for qualifying medical expenses
- Totally yours: Money rolls over year after year
Health Reimbursement Arrangement (HRA)
A health reimbursement arrangement (HRA) is a medical savings account purchased and maintained by your employer on your behalf as a means to save money for medical expenses.
Know the advantages:
- Notional: No funds are expensed until reimbursements are paid by employers
- Tax-free: Withdrawals for qualifying medical expenses are never taxed
- Economical: HRAs typically result in a reduced health insurance premium
Flexible Spending Account (FSA)
A flexible spending account (FSA) works similarly to an HRA, except you, not your employer, regularly contribute money to your savings account. Money is tax-free when used toward medical expenses.
Know the advantages:
- Ownership: You own the account and can make regular contributions
- Tax-free: Withdrawals for qualifying medical expenses are never taxed
- Flexible: Funds typically cover a wider range of medical expenses and medications than HSA or HRA funds
At a glance, understand how your account works:
| HSA | HRA | FSA |
| Meant for individuals or families with high-deductible health plans; money rolls over yearly | Availability is limited to the discretion of your employer; must be purchased and maintained by an employer on your behalf | Covers a wider range of medical expenses; money doesn’t roll over yearly |
Note: You may withdraw all funds from your account at the age of 65 without a tax penalty.
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