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Rules for FSA & and HSA Accounts

Both the flexible spending account and the health savings account allow you to pay for qualified medical expenses with tax-advantaged money. The flexible spending account is a type of account that you can access through an employer, while the health savings account is an account that you can set up on your own.

  1. Using a Health Savings Account

    • To use a health savings account, you must have a high-deductible health insurance plan. To qualify as a high-deductible plan, your insurance plan must have a deductible of $1,150 for an individual plan or $2,300 for a family plan, as of 2010. You contribute to a health savings account on a pre-tax basis. The money that you put in the account can then be used on qualified medical expenses without paying any taxes on the money.

    Using a Flexible Spending Account

    • The flexible spending account is a type of account that you can access through your employer as part of a benefits package. Your employer can offer this as part of a cafeteria plan, which allows you to choose from many different benefits. You then elect to contribute a certain amount of money to your flexible spending account out of your paycheck. Your employer can also choose to contribute money to your account. You can then use the money throughout the year for qualified medical expenses.

    Contributions

    • With both of these types of accounts, you contribute money out of your pre-tax income to the account. With the health savings account, you have a specific annual contribution that you can make. As of 2010, the maximum annual contribution is $3,000 for an individual or $5,950 for a family plan. With the flexible spending account, you decide at the beginning of the year how much you will contribute and sign a contribution agreement.

    Using the Money

    • Once you get money into either one of these accounts, you can use it to pay for qualified medical expenses. This could be for things like doctor co-pays, deductibles and treatments that are not covered by insurance, like dental and vision. With the flexible spending account, you have to use all of the money within the calendar year or else you will lose it. The money in the account resets every year and you have to start contributing again to build your account back up at the beginning of the year.

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