HSA vs FSA: Choosing at Open Enrollment

The open enrollment email has been sitting in your inbox for nine days. Tonight you finally click it. Three health plans. Two kinds of accounts with nearly the same letters. A deadline at the top in red. HSA vs FSA, the page asks, as if you should already know. You scroll down, scroll back up, and think about just picking whatever you had last year.

Choosing between an HSA vs FSA feels like reading a tide chart in a language you never learned. But the tide is simple once you see it. One account is a bucket you must empty by the end of the year. The other is a harbor that keeps whatever you put in it, for life. Which one you can use depends on the health plan you pick. Here is how to decide in one evening.

What the two accounts are

What it means: both accounts let you set aside money from your paycheck before income tax to pay for medical costs. That alone saves you roughly 20 to 30 cents on every dollar for many workers. The differences are in who owns the money and what happens when the year ends.

The 2027 numbers to know

Open enrollment this fall sets up your 2027 plan year. The IRS has already released the 2027 HSA limits. The 2027 health FSA limit usually arrives in the fall, so until then the 2026 figure is your guide. These change every year, so check current figures before you elect.

You usually cannot have both

This trips people up. If you open an HSA, you generally cannot also use a regular health FSA in the same year. The general FSA makes you ineligible.

There is one exception worth knowing: a limited purpose FSA. It covers only dental and vision. Many employers offer it alongside an HSA, so you can pay for glasses and cleanings with FSA money and let your HSA grow.

The worked example: two plans, two kinds of years

Let us compare two plans your employer might offer. You are single, earning $70,000.

Now imagine two kinds of years.

1. 1A quiet year: one checkup, one prescription, about $600 of care.
2. 2PPO: $1,800 premium plus about $600 of care equals $2,400.
3. 3High deductible plan: $720 premium plus $600 of care, minus the $500 your employer gave you, equals $820.
4. 4A hard year: a surgery that pushes you to the out of pocket maximum.
5. 5PPO: $1,800 plus $4,000 equals $5,800.
6. 6High deductible plan: $720 plus $5,000, minus $500, equals $5,220.

In this example the high deductible plan wins both years, mostly because of the lower premium and the employer deposit. That is not always true. If your employer charges little for the PPO, or the PPO's out of pocket maximum is much lower, the answer can flip. Run your own plans through the same six steps.

The tax savings, step by step

Both accounts skip federal income tax. When you contribute through payroll, both also skip Social Security and Medicare tax, which is 7.65 percent. At $70,000, you are likely in the 22 percent federal bracket.

1. 1Tax saved per dollar: 22 percent plus 7.65 percent is about 30 percent.
2. 2FSA of $2,000: you save about $590.
3. 3HSA of $4,500: you save about $1,330.

Why the HSA can become a retirement account

Here is the part almost nobody explains. An HSA has three tax breaks: money goes in untaxed, grows untaxed, and comes out untaxed for medical costs. No other account gets all three.

If you can afford to pay small medical bills from your regular budget, you can leave the HSA alone and invest it, for example in a broad, low cost index fund offered by your HSA provider. Keep your receipts. You can reimburse yourself years later.

That growth is an illustration, not a promise. Investments can lose value. After age 65, you can take HSA money out for anything; it is taxed like a traditional retirement account if it is not for medical costs.

How to choose tonight

Common mistakes

Your next steps

1. 1Pull last year's medical spending from your insurance portal or pharmacy records.
2. 2For each plan, add the yearly premium to your likely care and to the out of pocket maximum.
3. 3Subtract any employer HSA deposit from the high deductible plan's totals.
4. 4Choose the plan, then choose the account that fits it: HSA, FSA, or HSA plus limited purpose FSA.
5. 5Set your contribution, and put a reminder on your calendar to review it next fall.

The bucket empties when the year turns.

The harbor keeps what the tide brings in.

Choose where your money lands.