HSA and FSA: Can You Have Both?

Navigating healthcare savings options can be complex, particularly when considering the benefits and limitations of Health Savings Accounts (HSAs) and Flexible Spending Accounts (FSAs). Both of these accounts offer tax advantages which can help you save money on health-related expenses, but they differ significantly in structure, eligibility, and usage. Understanding whether you can have both, and how best to utilize them, requires a detailed look into the workings of each account.

Understanding HSAs and FSAs

Before we delve into whether you can have both accounts concurrently, it's essential to understand what each one entails.

What is an HSA?

A Health Savings Account (HSA) is a tax-advantaged savings account designed for individuals covered under a high-deductible health plan (HDHP) to save for medical expenses. Funds contributed to an HSA are not subject to federal income tax at the time of deposit.

Key Features of HSAs:

• Eligibility: To be eligible to contribute to an HSA, you must be enrolled in an HDHP, which is a requirement set by the IRS.
• Contributions: Contributions are made pre-tax, lowering your taxable income. Both employers and employees can make contributions.
• Rollover: Unused funds roll over year to year, making this a long-term savings option.
• Portability: The account holder owns the HSA, and it stays with you if you change jobs or retire.
• Use: Funds can be used to pay for qualified medical expenses, including deductibles and copayments, but not insurance premiums in most cases.

What is an FSA?

A Flexible Spending Account (FSA) allows employees to save pre-tax dollars for qualifying out-of-pocket health expenses. Unlike HSAs, FSAs are not exclusive to those with HDHPs and are provided as part of an employer benefits package.

Key Features of FSAs:

• Eligibility: Available if offered by your employer, usually integrated into a broader benefits package.
• Contributions: You decide how much to contribute based on the maximum limit set by your employer. Contributions are deducted from your salary before taxes.
• Use-it-or-Lose-it: Typically, funds must be used within the plan year; however, some plans offer a grace period or allow a small amount to carry over.
• Ownership and Portability: FSAs are owned by the employer, and funds are generally forfeited if you leave your job unless you have spent more than you've contributed.

Can You Have Both an HSA and an FSA?

The short answer is yes, but with limitations. Having both an HSA and an FSA is possible in specific scenarios, often involving a "limited-purpose FSA."

Limited-Purpose FSA

A limited-purpose FSA (LPFSA) is the key to combining an FSA with an HSA. This type of FSA is restricted to covering certain expenses, such as dental and vision costs, that are not typically covered by an HSA. Using these accounts in tandem allows for maximizing tax benefits while covering a broader range of healthcare expenses.

How It Works:

1. Concurrent Management: Having an LPFSA allows employees to contribute to an HSA while still setting aside pre-tax dollars in an FSA, specifically for dental and vision care expenses.
2. Maximized Tax Advantages: Both accounts offer pre-tax benefits, and managing them effectively helps optimize savings for diverse healthcare costs.
3. Employer Policies: Check with your employer, as they must offer an LPFSA option specifically. Not all employers provide this setup.

Example Scenario:

Consider Jane, an employee covered by an HDHP, who qualifies for an HSA. Her employer offers a limited-purpose FSA, which Jane uses for her vision and dental expenses. She can contribute to both accounts, using the HSA for general medical costs and the LPFSA for her routine vision check-ups and dental work. This strategy allows her to maximize her tax savings while ensuring coverage for all types of healthcare expenses.

Benefits of Utilizing Both Accounts

If you meet the criteria and your employer offers an LPFSA, there are several advantages to having both accounts:

• Broad Coverage: HSAs cover broader health-related expenses, while LPFSAs target expenses like vision and dental care.
• Increased Savings: The dual approach maximizes tax-deductible contributions, leading to greater overall savings.
• Financial Flexibility: Even if significant health expenses arise, having both accounts provides financial flexibility, allowing you to strategically use funds from each account as needed.

Comparison Table: HSA vs. Regular FSA vs. Limited-Purpose FSA

FAQs on Having Both HSA and FSA

Can I switch my regular FSA to a limited-purpose FSA during open enrollment?

Yes, if your employer offers the option, you can switch to an LPFSA during the next open enrollment period.

What happens if I overestimate my FSA contribution?

For a regular FSA or LPFSA, unused funds may be forfeited at the end of the plan year. Check with your employer for any rollover or grace period options.

Are there limits to what my LPFSA can cover?

Yes, an LPFSA is limited to qualified dental and vision expenses. It's important to understand what expenses qualify under your plan terms.

Next Steps

If you're considering using both an HSA and a limited-purpose FSA, consult with your employer's benefits department or a financial advisor. They can provide clarity on your options and guidance specific to your financial situation and healthcare needs.

For more in-depth information, explore our website for articles on maximizing your healthcare savings, understanding HDHPs, and making the most of employer benefits.