What distinguishes a Flexible Spending Account (FSA) from an HSA?

A Flexible Spending Account (FSA) is characterized by the requirement that funds must typically be used within a defined timeframe, usually the plan year, or they may be forfeited at the end of that period. This feature distinguishes it from a Health Savings Account (HSA), where funds can be carried over from year to year without a loss, allowing for greater flexibility in the use of funds over time.

The annual "use-it-or-lose-it" rule associated with FSAs means that participants need to carefully consider their expected medical expenses when contributing, as any unspent funds generally do not carry over. This distinguishes them from HSAs, where unspent contributions can accumulate indefinitely, providing more long-term savings potential for health-related expenses.

Understanding this critical difference is essential for individuals when choosing between these types of accounts for managing healthcare costs.