When I was still working, my employer began offering a couple of different health savings accounts.  They started with what’s called a flexible spending account and later then offered a health savings account.  Please note that these accounts were both employer sponsored.

So what exactly are they?  

A Flexible Spending Account (FSA) is an account you put pre-tax dollars into for healthcare expenses.  You designate how much each paycheck will go into this account.  Your employer will deduct it from your paycheck and put it into the account for you.  It can be used for you or any family member that is covered by your insurance policy.  But….  Yes, there’s always a but…  for most plans, you must spend it all by the end of the year, or you’ll lose whatever is left.  Why?  Because your employer owns your account.  Bummer!!!

Some employers offer a Health Savings Account (HSA).  I had one.  For these types of plans, they are also funded with pre-tax dollars.  Just like the FSA plan, your employer will deduct whatever you have decided to save each paycheck and add it to your account.  And, as with the FSA, it can be used for any medical expense you have that your insurance doesn’t cover.  However, instead of losing your savings at the end of each year, you get to keep whatever savings you didn’t use.  And, if you change jobs, or retire, it’s still your money.  You take it with you and it’s still yours to use.  Why?  Because YOU own the account, not your employer.

I had an HSA and used up the funds over many years after retirement.  In 2025, you can contribute up to $4,300 as a single person or up to $8,550 for a family.  And, if you’re over 55 years of age, you can add an additional $1,000 as a catch-up contribution. Yes, I know it sounds like a lot of money, but believe me when I say it’s worth it.

But, there are also rules for an HSA that have to be followed.  There’s that catch again.  LOL  Your employer has to have a high-deductible health insurance plan that you’re enrolled in.  Sometimes, your employer will help fund your HSA.  My employer funded half of my deductible for the first year while I built the funds up.  There are other rules, but those are two of the biggest ones.

Moral of the story:

If your employer offers FSA’s or preferably HSA’s, put in as much money each check as you can possible afford.  But, if it’s an FSA, perhaps you should temper your contributions to what you think you’ll be spending so you don’t lose it. However, if you have the option to have either one, make sure you understand the rules thoroughly so that you can budget your contributions appropriately.  The best part is that you won’t owe taxes on either of these options.  I think that’s simply awesome.