Financial Word of the Week: HSA vs. FSA

  |  Posted by

Financial Word of the Week

You’ve probably heard a lot about health savings accounts (HSAs) recently. They have been all over the news because the industry saw a 29 percent increase in the number of accounts in 2014. In fact, UMB Healthcare Services recently reached 600,000 accounts and $1 billion in assets and deposits for HSAs.

So what is an HSA?

To be eligible for an HSA, you must be enrolled in a qualified High Deductible Health Plan.  An HSA is a savings and investment tool for current or future qualified medical expenses. HSA deposits and earnings grow tax-free,1 and your withdrawals are tax-free as long as you spend the money to pay for eligible medical expenses. Deposits into your account up to the annual contribution limits and any interest on those deposits are not taxed. At the end of the year, the money you have saved rolls over and continues to do so throughout the duration of your HSA’s life. Many companies will also contribute to or match your HSA funds to a certain amount; free money for your medical expenses. You can find out even more about HSAs here.

Another type of account to consider, if it is offered by your employer, is a flexible spending account (FSA).

A FSA is also a tax-advantaged savings account. You can set aside funds each year to cover qualified medical costs throughout that year. Some companies will even contribute to your FSA. The big difference between an HSA and an FSA is that the funds you put into an FSA have to be used by a certain date or the money is forfeited. Learn more about FSAs here and take a look at our chart that compares three types of consumer directed health care.

Comparison of Consumer Directed Healthcare


1All mention of taxes is made in reference to federal tax law. States can choose to follow the federal tax-treatment guidelines for HSAs or establish their own; some states tax HSA contributions. Please check with your state’s tax laws to determine the tax treatment of HSA contributions, or consult your tax adviser. Neither UMB Bank n.a., its parent, subsidiaries nor affiliates are engaged in rendering tax advice.


When you click links marked with the “‡” symbol, you will leave UMB’s website and go to websites that are not controlled by or affiliated with UMB. We have provided these links for your convenience. However, we do not endorse or guarantee any products or services you may view on other sites. Other websites may not follow the same privacy policies and security procedures that UMB does, so please review their policies and procedures carefully.

UMB Financial Corporation (Nasdaq: UMBF) is a diversified financial holding company headquartered in Kansas City, Mo., offering complete banking services, payment solutions, asset servicing and institutional investment management to customers. UMB operates banking and wealth management centers throughout Missouri, Illinois, Colorado, Kansas, Oklahoma, Nebraska, Arizona and Texas, as well as two national specialty-lending businesses. Subsidiaries of the holding company include companies that offer services to mutual funds and alternative-investment entities and registered investment advisors that offer equity and fixed income strategies to institutions and individual investors.

Tagged: , , , , , , ,