Starting a new job can come with a host of changes to your routine, systems and accounts. Among these changes, you might need or decide to contribute to a health savings account (HSA). Some employers offer and contribute to these accounts to help you put funds aside for healthcare expenses. But you don’t have to have an employer to open an HSA. If your employer doesn’t offer this benefit, or if you’re self-employed, you can still open an account.

Although it’s important to consult a tax advisor on whether and how you should use an HSA, University of Phoenix shares an introduction to these accounts, explaining what an HSA is and the differences between HSAs, flexible spending accounts (FSAs) and 401(k) accounts.

What Is a Health Savings Account (HSA)?

HSAs became a health insurance option when George Bush signed the Medicare Prescription Drug Improvement and Modernization Act of 2003 into law.

An HSA is a personal account that allows you to set aside pre-tax dollars from your paycheck to cover the cost of eligible medical expenses. These expenses may include copays, deductibles, coinsurance, dental, vision and prescription drug costs.

Before you can have an HSA, you must be enrolled in a consumer-driven health plan (CDHP) or high-deductible health plan (HDHP). This means you pay a deductible before the health care plan pays according to the coinsurance. CDHP and HDHP plans are available through the Affordable Care Act and private insurance.

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HSA contributions are tax free and deducted from your paycheck before taxes. Therefore, they reduce your gross annual income, and this could affect your income tax liability. Furthermore, investment earnings and interest are never taxed, and taxes are not applied for withdrawals for eligible medical expenses.

Differences Between HSAs and Flexible Spending Accounts (FSAs)

An HSA is not to be confused with an FSA, another tax-free account that some employers offer and contribute to so you can cover eligible medical expenses. However, three main factors make FSAs different from HSAs.

  1. The IRS defines the maximum salary deferral for FSA contributions. However, employers can set a lower contribution amount.
  2. Employers sponsor and own FSAs. So, if you leave your job, the FSA and its funds stay with the job. Meanwhile, although employers can contribute to your HSA, they don’t own the account. So your money moves with you when you change jobs.
  3. You have to use the funds in your FSA before the end of the plan year or the funds will be forfeited. However, there are exceptions to this rule. For example, some employers allow employees to roll up to $500 into the next plan year, and others allow a grace period for employees to spend the balance. On the other hand, any funds that you don’t spend in your HSA in a given year roll into the next year’s plan.
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Although you can contribute to a limited-purpose FSA to cover your vision and dental expenses, you can’t contribute to a health care FSA and HSA at the same time.

Differences Between HSAs and 401(k) Accounts

An HSA is also similar, in some ways, to a 401(k) account. Like a 401(k), you can invest your HSA fund, allowing your savings to grow beyond the amount you have invested. However, there are two key differences between 401(k) accounts and HSA accounts.

  1. Unlike 401(k) withdrawals, HSA withdrawals are not taxed unless you use the money for an unqualified expense before you turn 65, in which case the withdrawal is taxed and subject to a 20 percent penalty. If you withdraw funds for a non-medical expense before you turn 65, the withdrawal will be taxed as income, but you won’t be charged a penalty fee.
  2. Employers set the maximum limit on contribution caps for FSAs, whereas the IRS sets the minimum and maximums for HSAs. In 2022, individuals who meet the HDHP threshold can contribute a maximum of $3,650 for self-only coverage and a maximum of $7,300 for family coverage in an HSA. It’s also worth noting that the HDHP threshold can change each year.

When you turn 55, you can also pay a $1,000 catch-up contribution into your HSA. Although you can’t contribute to an HSA once you are enrolled in Medicare, you can withdraw funds to cover eligible medical expenses and pay Medicare premiums.

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Qualified Medical Expenses

Your qualified medical expenses may offset your HSA contributions. Aside from medical bills for hearing aids, prescription eyeglasses, copays, medical prescriptions and lab work, your HSA funds may cover other medical expenses including birth control, medical supplies, therapy, acupuncture, chiropractor services, orthodontia and smoking-cessation programs.

About University of Phoenix

University of Phoenix is committed to furthering the educational goals of adult and nontraditional learners and to helping these learners navigate the career options and degree programs that best suit their interests. The University’s degree programs align with plentiful career paths including paths in cybersecurity, nursing and business.


The University also provides flexible start dates, online classes and several scholarship opportunities to make it possible for anyone to earn the degree they need. University of Phoenix’s Career Services for Life® commitment to active students and graduates provides the resources needed to be prepared when entering the workforce for no additional charge. These resources include resume and interview support, career guidance and education and networking opportunities. For more information, visit


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