Navigating the maze of consumer driven healthcare accounts can be complex, but a clear understanding is important for making effective healthcare and financial decisions. This guide provides a brief overview of the most common accounts: Health Savings Accounts (HSAs), Health Reimbursement Arrangements (HRAs), Flexible Spending Accounts (FSAs) and Limited Purpose FSAs (LPFSAs).
Health Savings Account (HSA)
An HSA is a tax-advantaged savings account available to individuals enrolled in a qualified High-Deductible Health Plan (HDHP). Contributions to an HSA are made pre-tax, reducing your taxable income*. You can invest the funds within your HSA, providing potential for growth that is tax-free*. When used for qualified medical expenses, withdrawals are also tax-free*. Unused funds in an HSA roll over year after year, and the account stays with you—even if you change jobs or retire.
2025 Contribution Limits
- Individual: $4,300
- Family: $8,550
- Catch-up contributions (age 55+): Additional $1,000
Eligibility Requirements
- Must have HDHP coverage (Minimum deductible: $1,650 individual / $3,300 family; Max out-of-pocket: $8,300 individual / $16,600 family)
- No other disqualifying coverage (such as Medicare or general-purpose FSA/HRA)
- Cannot be claimed as a dependent on another person’s tax return
See IRS Publication 969 for more details on HSAs.
Health Reimbursement Arrangement (HRA)
An HRA is funded solely by your employer, reimbursing you for IRS-qualified medical expenses. Employers control contribution amounts, eligible expenses, and rollover options. Generally, traditional HRAs are not portable, meaning unused funds revert to the employer upon leaving your job.
Flexible Spending Account (FSA)
An FSA allows you to allocate pre-tax dollars for qualified medical expenses. For 2025, the annual contribution limit set by the IRS is $3,300. FSAs adhere to a “use-it-or-lose-it” policy, meaning you must typically use the funds by year-end. Employers may choose either a grace period of up to 2.5 months or a limited rollover of up to $660, but not both. FSAs are employer-established and not portable if you change jobs.
Limited Purpose Flexible Spending Account (LPFSA)
An LPFSA functions similarly to a regular FSA but is limited exclusively to dental and vision expenses. Its narrow scope allows it to be used alongside HSAs, letting you optimize your tax benefits for dental and vision care while preserving your HSA funds. LPFSA contributions follow the same annual limits and rollover rules as regular FSAs.
Key Differences at a Glance
- Ownership and Portability: HSAs are individually owned and portable. HRAs and FSAs (including LPFSAs) are employer-owned and non-transferable.
- Contribution Sources: HSAs can receive contributions from employees, employers, or third parties. HRAs are exclusively funded by employers. FSAs and LPFSAs are primarily employee-funded, with optional employer contributions.
- Rollover Policies: HSA balances never expire. HRAs, FSAs and LPFSAs have varying rollover options based on employer policy and IRS guidelines.
- Eligibility Requirements: HSAs require enrollment in an HSA eligible HDHP. HRAs, FSAs and LPFSAs depend on employer-offered plans and specific plan rules rather than health insurance type.
We hope this overview helps you understand the distinctions between these accounts and enables you to select the best accounts to meet your healthcare and financial goals effectively.
* HSA contributions and earnings grow tax-free at the federal level, and at the state level in most states. Some states, however, including New Jersey and California, may treat HSAs differently for state income tax purposes. Consult your tax advisor for state-specific information.