Question

Which of the following lines correctly compares an HSA (Health Savings Account) with an FSA (Flexible Spending Account)?

a) HSAs are tax-deductible, while FSAs are not.
b) HSAs are funded with pre-tax dollars, while FSAs are funded with after-tax dollars.
c) FSAs have no contribution limits, while HSAs do.
d) HSAs are only available for high-income individuals, while FSAs are for everyone.

Answer 1

Both HSAs and FSAs use pre-tax dollars for eligible medical expenses and offer tax benefits, but FSAs typically require funds to be used within the plan year, while HSA funds can roll over.

Step-by-step explanation:

The correct comparison between an HSA (Health Savings Account) and an FSA (Flexible Spending Account) is that HSAs are funded with pre-tax dollars, just like FSAs. Both account types allow individuals to use pre-tax funds for eligible medical expenses. However, HSAs have annual contribution limits, whereas FSAs typically do as well but may have different limitations and conditions. Contributions to both HSAs and FSAs can be tax-deductible, and they both offer tax advantages like tax-free growth on earnings. One significant difference between them is that HSA funds can roll over year to year, while FSA funds usually must be used within the plan year, with certain limited exceptions.