Articles - Archived Money Matters

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FSA or HSA: Which is right for you?

Flexible spending accounts (FSAs) and health savings accounts (HSAs) allow you to defer a portion of your income to cover qualified medical expenses, while reducing your taxable income. Many people, however, are eligible for only one of these accounts, so it's important to understand the differences between them.

An FSA must be offered through your employer. Each year during your benefits open enrollment period, you can elect to contribute to an FSA, or change your contribution amount. Any money that remains in the account at the end of the plan year is forfeited, so you have to use all of the money, or lose it. The money deposited into the FSA is not reported as taxable income on your W-2.

An HSA, on the other hand, can be opened by an individual or family as long as they have a qualifying high-deductible health plan. For 2010, a qualifying health insurance plan must meet the requirements below:

Self-only coverage Family coverage
Minimum annual deductible $1,200 $2,400
Maximum annual deductible and
other out-of-pocket expenses 		$5,950 $11,900

For 2010, contributions to an HSA are limited to $3,050 for an individual and $6,150 for a family. Those over 55 can make an additional $1,000 catch-up contribution. You have until April 15 of the following year to make your contribution, which is deducted from your tax return. Unlike an FSA, you don't have to use all of the money in your HSA account each year; it can roll over from year to year.

Ask your employer if they offer an FSA, and also review your health plan to see if you qualify for an HSA. If you do, look at LGFCU's competitive HSA, which comes with its own debit card for your convenience.