What is an HSA/FSA and what are the benefits?

An FSA (Flexible Spending Account) and an HSA (Health Savings Account) are tax-advantaged accounts for medical expenses, but differ in key aspects.

FSAs are employer-sponsored accounts that allow employees to use pre-tax dollars for medical expenses such as prescriptions and copays. They typically feature a "use-it-or-lose-it" policy where funds must be used within the plan year.

HSAs are available to those enrolled in a high-deductible health plan and offer greater flexibility, including the ability to roll over funds annually. HSAs also come with three notable tax benefits. The contributions made to HSAs reduce your taxable income and the money in an HSA is allowed to grow tax-free. This includes any interest, dividends, and capital gains earned from investments made with HSA monies. In addition, withdrawals from HSAs are not subject to taxes when the distribution is spent on qualified expenses.