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FSA, HRA, and HSA – What’s the Difference?

FSA, HRA, and HSA – What’s the Difference?

You’ve probably heard of the FSA, HRA, and HSA. Chances are, you even know a little bit about each one. Learn about what they are, how you can use them, and which one is right for you.

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Flexible Spending Account (FSA):

A healthcare spending account that you put money into before taxes are taken out of your paycheck. During open enrollment, you decide how much money you want to put into an FSA. Then, each paycheck, your employer will deduct a portion and put it into your account.

Pros: Cons:
The great thing about FSAs is that they are pre-tax. You can use them all year to pay for eligible healthcare expenses like co pays, contact lenses, and prescriptions. Some people like to put in a large amount of money into their FSA and use it for something big like laser eye surgery.  There’s a “use it or lose it” rule. You must use all the money in your account before the end of the year, or it’s gone.
Anyone can participate. You don’t have to be in a high deductible health plan to use an FSA. You can’t use an FSA to pay for everything. For example, you may have to have a prescription in order to use it to pay for a medication.

Health Reimbursement Account (HRA):

An account that your employer funds on your behalf to pay for medical expenses. They will determine how much they will contribute and put funds in as you need medical care.

Pros: Cons:
You don’t have to be covered under a high deductible health plan to participate. If you leave that company, the funds don’t come with you since your employer put them in.
Reimbursements may be tax free if you pay qualified medical expenses. Depending on how much money you make, you may be subject to “certain limitations” that many feel are vague and difficult to understand.
The contribution your employer makes on your behalf can be excluded from your gross income. Only your employer can put money into an HRA. You can’t contribute.


Health Savings Account (HSA):

A savings account that you, a family member, or your employer put money into to pay for eligible healthcare expenses. This money is not taxed when you deposit it and can be carried over to the next year if you don’t use it, unlike an FSA.

Pros: Cons:
You own this account, not your employer, so if you leave the company, this money goes with you.  You must be enrolled in a high deductible health plan to use an HSA.
You can claim a tax deduction for any funds you put into an HSA. The IRS limits how much you can put into your account each year. 
You can earn interest on your investments.  



Choose the Account that Works for YOU

Now that you know the differences, you can choose which is right for you and your healthcare needs.

All of these accounts have certain IRS tax-restrictions. Get tax-related details from the IRS for each.

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