FSA vs. HSA: Learn eligibility, key differences, pros/cons, and how to choose based on your health plan and goals.

FSA and HSA: What’s the Difference?

Did you know you may have access to tax-advantaged accounts that can help cover medical expenses?

Depending on your health plan, you may be eligible for a Flexible Spending Account (FSA) and/or a Health Savings Account (HSA). These accounts are often confused, but understanding how they work can help you use your benefits more effectively.

What is an FSA?

An FSA is an employer-sponsored account that lets you set aside pre-tax money to pay for qualified medical expenses such as copays, prescriptions, over-the-counter medications, and certain medical supplies. Because contributions are made on a pre-tax basis, they can reduce your taxable income.

For 2026, the IRS set the annual Health Care FSA contribution limit at $3,400 (your employer may set a lower limit). If your plan allows a carryover, you may be able to roll over up to $680 of unused funds into the next year. Any unused amounts above the carryover or grace period limits are forfeited.

FSAs do not offer investment options and are designed for short-term healthcare spending rather than long-term savings.

One big benefit: Your contributions are made pre-tax, potentially lowering your taxable income for the year.

Pros of a Flexible Spending Account (FSA):

• Pre-tax contributions may reduce your tax bill

• Widely usable for everyday qualified medical expenses

Cons of a Flexible Spending Account (FSA):

• Unused funds may be forfeited

• No investment growth

• Not designed as a long-term or retirement medical savings tool

What is an HSA?

An HSA, while similar in purpose, offers far more long-term flexibility. You are eligible to open and contribute to an HSA if you are enrolled in a High-Deductible Health Plan (HDHP) that meets IRS requirements.

For 2026, contribution limits are $4,400 for individual coverage and $8,750 for family coverage, plus an additional $1,000 catch-up contribution if you’re 55 or older.

Unlike an FSA, an HSA belongs entirely to you — the account stays with you even if you change jobs, retire, or change insurance plans (though eligibility to contribute depends on having qualifying HDHP coverage). You can contribute through payroll or directly, and funds can be invested with potential for tax-free growth. There is no expiration date on HSA funds, allowing you to save for future medical costs well into retirement.

Pros of a Health Savings Account (HSA):

• Offers a triple tax advantage, meaning contributions are pre-tax, earnings grow tax-deferred, and withdrawals for qualified medical expenses are generally tax-free
• Funds roll over indefinitely
• Portable and investable

Cons of a Health Savings Account (HSA):

• Requires enrollment in an HDHP
• May include account or investment fees
• Non-qualified withdrawals may be subject to taxes and penalties (penalty no longer applies after age 65)

How to Choose Between an HSA and an FSA

In general, an HSA offers more flexibility and the opportunity for greater long-term tax advantages. Because funds can grow tax-free and roll over year to year, an HSA can also serve as a supplemental way to save for future healthcare costs, especially if other retirement savings goals are already on track. HSA funds must be used for qualified medical expenses to receive the full tax benefit, but many people incur healthcare costs over time, making an HSA a useful part of a broader financial plan.

When choosing between an HSA and an FSA, first check your eligibility. Do you have a high-deductible health plan (HDHP)?

More importantly, is that type of plan a good fit for your situation?

If you are generally healthy and comfortable with the higher deductible, an HDHP paired with an HSA may be worth considering. This may feel more manageable if you also have an emergency fund or other savings to help cover out-of-pocket costs when needed (and HSA funds can be used toward the deductible).

On the other hand, if you expect regular medical expenses or prefer more predictable out-of-pocket costs, an FSA paired with a plan that has a lower deductible may be a better fit. This approach can provide tax benefits while reducing the risk of large upfront healthcare expenses.

The Bottom Line

Both FSAs and HSAs can be valuable tools, but the option that’s a better fit for you depends on your overall financial situation, healthcare needs, and eligibility. Navigating these options can feel overwhelming, especially when they intersect with broader financial and tax considerations.

For personalized guidance, consider connecting with an EP Wealth advisor. Our team can help you evaluate your benefit options within the context of your full financial plan and determine what best supports your long‑term goals.

Talk to an EP Wealth advisor.

DISCLOSURES

• Request an appointment with an EP Wealth Advisor when you have a minimum of $500,000 in investable assets – which includes qualified retirement plans (IRA, Roth IRA, 401(k), taxable brokerage, cash (savings / checking) and CDs. Investable assets do not include your home, vehicles, or collectibles.
• EP Wealth Advisors, LLC. is registered as an investment advisor with the SEC and only transacts business in states where it is properly registered, or is excluded or exempted from registration requirements. SEC registration does not constitute an endorsement of the firm by the Commission nor does it indicate that the advisor has attained a particular level of skill or ability.
• Hiring a qualified advisor and/or financial planner does not guarantee investment success, and does not ensure that a client or prospective client will experience a higher level of performance or results. No guaranty or warranty is made that any direct or implied results or projections being represented here will be met or sustained.
• The need for a financial advisor or financial planner and/or the type of services required are specific to the uniqueness of each individual’s circumstances. There is no guarantee or warrantee that the services offered by EP Wealth Advisors, LLC will satisfy your specific financial services requirements. Services offered by other advisors may align more to your specific needs.
• Information presented is general in nature and should not be viewed as a comprehensive analysis of the topics discussed. It is intended to serve as a tool containing general information that should assist you in the development of subsequent discussions. Content does not involve the rendering of personalized investment advice nor is it intended to supplement professional individualized advice.
• EP Wealth Advisors (“EPWA”) makes no representations or warranties as to the accuracy, timeliness, suitability, completeness, or relevance of any information presented. All expressions of option are subject to change without notice.
• The content of this report is believed to be accurate as of the date of publication and cannot and does not accurately forecast future economic, market, or financial conditions; including changes to retirement benefits, social security, and/or Medicare. For this reason, any subsequent changes, and/or that occur after the publication of this presentation may cause the analysis encompassed herein to become inaccurate. Any references to future market or economic forecasts are based on hypothetical assumptions that may never come to pass.
• All investment strategies have the potential for profit or loss. Different types of investments and investment strategies involve varying degrees of risk, and there can be no assurance that any specific investment strategy will be suitable or profitable for a client’s portfolio. The risk of loss can never be eliminated even if working with a professional.
• Please consult with a CPA, tax professional, and/or attorney regarding your specific situation before implementing any of the strategies referenced directly or indirectly herein.