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FSAs, HSAs and HRAs

Today’s featured video discusses FSAs, HSAs and HRAs. What are they and what are the differences between these accounts? Please watch the video.

An FSA is a flexible spending account, an HSA is a health savings account and an HRA is a health reimbursement arrangement. These accounts allow you to pay for eligible medical expenses with pre-tax dollars. Some examples of eligible expenses are doctor visit copays and coinsurance, prescription drug copays, and even band aids and sunscreen.

You can find a long list of eligible and ineligible expenses for each of these accounts on the IRS website so we encourage you to review that information if you have one of these accounts. It’s also possible to have more than one of these accounts at the same time.

An FSA is an employer-owned and employee-funded account. There are different types of FSAs, but today we will focus on the healthcare FSA. Employees can contribute up to $2,750 per year to an account from their salaries. FSAs are “use it or lose it” although many employers allow employees to rollover a portion of unused funds and/or have a grace period during which you may continue to submit claims. Because this is an employee-funded account, we encourage you to think about how much you want to contribute each year. We have heard many stories of employees trying to quickly spend unused funds at the end of each year. If you leave the employer, you also no longer have access to the funds.

An HSA is an employee-owned and employee and/or employer-funded account. Unlike an HRA or FSA, this is your money and there is no timeframe in which you must spend the funds. Anyone can open an HSA as long as they are enrolled in a high deductible health plan that fits IRS guidelines (not all plans with a high-deductible are HSA compatible). You can be enrolled in a high-deductible health plan through an employer or through an individual health plan. The funds are meant to help offset the higher out-of-pocket expenses that typically come with a high-deductible plan.

Individuals can contribute up to $3,600 annually for an individual and $7,200 for a family to an HSA in 2021. If you are over the age of 55, you can contribute an additional $1,000 per year and all unused funds will roll over into the new year.

If you are no longer enrolled in a high-deductible health plan, you can still use your HSA to pay for qualified medical expenses, but you can no longer contribute to your HSA. Similarly, if you enroll in Medicare Part A, you can continue to pay for expenses with your HSA funds, but you can no longer contribute to the account. An HSA is unique in that these funds can also be invested. This is also the only account you would report on your taxes.

An HRA is an employer-owned and employer-funded account. There is no limit on how much money an employer can contribute each year and employers decide how much to fund an HRA. If you leave your employer, you no longer have access to the funds.

We appreciate your interest in this important video!