HSA ≠ FSA ≠ HRA
The similarity for these accounts usually stops at "tax-free for eligible medical expenses." Here's a breakdown of the important differences:
| FSA | HRA | HSA |
Ownership | Employer | Employer | Individual |
Funding | Employer front loads funds and deducts the contributions from the employee's paycheck | Strictly employer-funded | Individuals can contribute pre-tax from their paychecks. Employers can elect to contribute as well. |
Limits | $3,200 (2024) | Limits are set by the employer | Individual: $4,150 (2024) |
Rollover | Up to $640 (2024), per the employer | Depends on the employer | Full balance |
Eligibility | Must be enrolled in an employer group health plan | Only if the employer provides this benefit | Need an HSA-eligible health plan with no disqualifying circumstance |
With an HSA, you don't have to worry about losing access to your funds. The named account holder owns the account so it goes with them no matter who their employer or HSA-eligible health plan provider is.
Plus, the HSA is a triple tax-advantaged savings vehicle! You can put money into your HSA pre-tax, let your money grow tax-free, and take money out on a tax-free basis for qualified medical expenses.
HSA vs 401(k)
If you never take money out of your HSA, it works almost like a 401(k). A 401(k) lets you begin making withdrawals with no penalty when you are 59 1/2 years old. With an HSA, you can take non-qualified distributions from your HSA after 65 years old and not pay a penalty. For both of those cases, you will pay ordinary income taxes at the time you withdraw it. Aside from the 5 1/2-year difference, the big difference is that if you use your HSA funds to pay for any qualified medical expenses, you can use that money on a tax-free basis!
Additionally, if you are over 70 1/2 years old, you are required to begin taking distributions from your 401(k) or pay stiff penalties, whereas, with an HSA, there is no such requirement. You can continue letting your money grow.