Health care costs are expected to keep climbing in 2026, but tax-advantaged accounts like flexible spending accounts (FSAs) and health savings accounts (HSAs) can help you save money and manage expenses better. Whether it’s copays or GLP-1 meds for weight management, these accounts let you set aside money tax-free for health care.
If you’re an employer or employee looking for smarter benefits, it’s key to know how FSAs and HSAs work, what limits they have, and their tax benefits. This guide breaks down the pros and cons of each so you can pick what works for your budget, health plan, and goals.
What is an FSA?
An FSA (flexible spending account) is a tax-friendly account where employees can set aside pre-tax dollars for medical, dental, and vision expenses. The money is available on day one of the plan year—before you hit any deductibles.
FSA Eligibility
You can sign up for an FSA through most employer health plans during open enrollment. You don’t need a high-deductible health plan (HDHP). Just know that a general-purpose FSA stops you from making new HSA contributions that year, though you can still tap into your existing HSA balance. Since FSAs and HSAs are separate accounts managed independently, you can access your HSA funds through its debit card, provider portal, or reimbursement claims process without interference from the new FSA. Existing HSA balances remain fully available for qualified expenses like prescribed GLP-1 medications at any time.
FSA Ownership
Your employer sponsors and owns the FSA, tying it to your job. So if you leave, any unspent funds go back to them—you can’t take it with you or use it after you are no longer employed by the company.
FSA Investment
FSAs do not permit investment options. Instead, funds remain as cash balances, generating no interest or growth.
FSA Rollover
FSAs have a “use-it-or-lose-it” rule—you need to spend on qualified expenses by the end of the plan year or lose the money. Your employer might offer a $680 carryover to next year or give a 2.5-month grace period until March 15, but not both. That’s why you should forecast your expenses carefully and plan ahead.
FSA Tax Benefits
Your contributions come out pre-tax, cutting your federal income tax, FICA, and often state taxes. You could save an average of 30%, depending on your tax bracket.
FSA Use Cases
FSAs are best used for covering predictable expenses, like LASIK surgery or GLP-1 medication costs. Reimbursements cover over-the-counter items, copays, and prescriptions without HDHP restrictions.
FSA Contribution Limits
The FSA contribution limit in 2026 is $3,400, an increase of $100 from 2025. Contributions prorate for mid-year enrollment. Employers may also provide matching funds in addition to employee contributions.
FSA Qualified Expenses
Qualified FSA expenses align with IRS Section 213(d) definitions, including prescribed GLP-1 medications, doctor visits, dental procedures, and acupuncture.
FSA Pros and Cons
Understanding the advantages and limitations of FSAs helps determine if they align with your health care spending habits and financial goals. Here’s a closer look at the pros and cons of these accounts.
Pros:
Full contribution amount available on January 1, helping cover early-year expenses.
Works with many health plans; no HDHP needed.
Easy reimbursements for routine dental and vision costs.
Tax savings apply immediately through payroll deductions.
Cons:
Lose unused funds if no grace period or carryover applies.
Funds don’t move with you if you change jobs.
Lower contribution limits with no investment options.
General FSAs limit compatibility with HSAs.
What is an HSA?
An HSA (health savings account) is a personal account paired with a HDHP. It helps pay deductibles and qualified medical costs while letting you invest and enjoy triple tax benefits.
HSA Eligibility
To qualify for an HSA, you need HDHP coverage with minimum deductibles of $1,700 for self-only or $3,400 for family, and out-of-pocket maxes of $8,500 or $17,000. You’re not eligible for an HSA if you’re on Medicare, claimed as a dependent, or have a general-purpose FSA.
HSA Ownership
You own your HSA outright. It sticks with you through job changes, retirement, or whatever life throws at you—no employer strings attached.
HSA Investment
Once your balance hits $500–$1,000, you can invest in mutual funds, ETFs, or stocks. Earnings grow tax-free for qualified expenses and can significantly accumulate long-term.
HSA Rollover
All HSA balances roll over indefinitely from year to year. No “use-it-or-lose-it” rule applies, allowing accumulation for future health care needs.
HSA Tax Benefits
HSAs offer three tax advantages: pre-tax contributions, tax-free investment growth, and tax-free withdrawals for qualified expenses. Qualified withdrawals include expenses such as doctor visits, prescription medications (including prescribed GLP-1s), and other IRS-approved medical costs. After age 65, non-qualified withdrawals incur income tax only, without the 20% penalty, similar to a retirement account.
HSA Use Cases
HSAs support chronic care, such as ongoing GLP-1 treatments for diabetes or obesity management. Reimburse past expenses tax-free or invest excess funds for family deductibles or retirement health care.
HSA Contribution Limits
HSA limits in 2026 are $4,400 for self-only and $8,750 for family coverage, with an additional $1,000 catch-up for those 55 and older. Employer contributions do not count toward personal limits.
HSA Qualified Expenses
Qualified HSA expenses match FSA definitions, including prescribed GLP-1 medications, therapies, and copays after meeting the deductible. Receipts support reimbursements at any time.
HSA Pros and Cons
HSAs provide powerful tax advantages and long-term growth potential, but can still come with potential risks and drawbacks. Here, we’ll break down the pros and cons of this option.
Pros:
Own it for life; it moves with you if you change jobs.
Tax-free growth on investments.
Unlimited rollovers.
Higher limits and catch-up contributions benefit families and older individuals.
Flexibility extends to retirement use after age 65.
Cons:
HDHP deductibles require upfront payment.
Early withdrawals for non-medical costs come with a 20% penalty and taxes.
Funds accumulate as contributed, unless reimbursing prior expenses.
Must have a HDHP to use.
FSA vs. HSA: A Comparison
Use this side-by-side to help decide which account matches your health care needs and financial situation.
FSA | HSA | |
Eligibility | Any employer plan | Must have HDHP |
Ownership | Tied to employer | Individually owned |
Investment options | No | Yes, after minimum balance |
Rollover | $680 or 2.5-month grace (employer choice) | Unlimited |
Tax benefits | Pre-tax contributions | Triple tax advantage (contributions, growth, withdrawals) |
Funds availability | 100% day one | As contributed (reimburse past anytime) |
Contribution limit | $3,400 | Self: $4,400; family: $8,750 |
Portability | No; funds lost if job ends | Yes; for job changes and retirement |
FSA vs. HSA: Which Should You Choose?
Deciding between an FSA and an HSA ultimately depends on your health plan type, expected medical expenses, and financial priorities.
Choose an HSA if:
You’re on or switching to a high-deductible health plan for lower premiums.
You have ongoing or unpredictable costs like GLP-1 meds and want the ability to invest and save long-term.
You want portability and a health savings fund for retirement.
Choose an FSA if:
You have a low-deductible plan or want to avoid HDHP surprises.
Your expenses are predictable and short-term, like braces or glasses
You want immediate access to the full amount with fewer eligibility hoops.
Finding the Right Fit for Your Health Care Needs
FSAs and HSAs address out-of-pocket health care costs effectively in 2026, with HSAs providing superior long-term flexibility through portability, investments, and rollovers. Ultimately, the best choice depends on your health plan type, expense predictability, and savings goals. It’s important to review your coverage during open enrollment to select and potentially combine accounts for optimal tax savings and coverage.
FSA vs. HSA FAQs
Can I use FSA or HSA for GLP-1 medications like Ozempic?
Prescribed GLP-1 medications qualify as eligible expenses for both FSAs and HSAs under IRS guidelines, covering copays or full costs. A medical diagnosis, such as diabetes or obesity, is required; cosmetic use without prescription does not qualify.
Andel can also help improve affordable access to GLP-1s for weight loss through our member-centered pharmacy experience (however, the membership fee isn’t considered a qualified expense). If your employer participates, you’ll receive an invitation to join and start saving.
What if I change jobs—do my FSA or HSA funds transfer?
If you change jobs, HSA funds transfer directly to a new provider or financial institution, remaining under individual control indefinitely. However, unspent FSA funds revert to the employer upon termination, though claims may process briefly afterward. HSAs maintain continuity for expenses like GLP-1 treatments during transitions.
Can I have both an FSA and HSA?
No, you cannot have both a traditional HSA and a traditional medical FSA at the same time, according to IRS rules. However, you can have an HSA with a limited-purpose FSA (LPFSA) for dental and vision expenses, or a dependent care FSA (DCFSA) for dependent care costs.
How do 2026 limits for FSAs and HSAs affect families?
The FSA limit remains $3,400 regardless of family size. The HSA family limit increases to $8,750, plus $1,000 catch-up per eligible spouse aged 55 or older, supporting multi-member needs like GLP-1 medications. These inflation-adjusted limits align with rising health care expenses.
