FSA (Flexible Spending Account)

An FSA is an employer-sponsored account that lets you set aside pre-tax dollars for qualified medical expenses. Unlike an HSA, you don't need to be on an HDHP — any employer plan can offer one. The tradeoff is "use it or lose it": funds generally don't roll over year to year, so you have to plan the contribution carefully.

The 2024 contribution limit is $3,200 per employee (families with two working spouses can each contribute). Employers can offer one of two flexibility features but not both: a grace period of up to 2.5 months into the next year to spend prior-year funds, or a carryover of up to $640 into the following year. The whole annual election is available on day one of the plan year — a real cash-flow advantage over an HSA, which only holds what you've contributed to date. There's also a dependent care FSA (separate $5,000 limit) for childcare and eldercare, and a limited-purpose FSA that pairs with an HSA for dental and vision only.

The takeaway: contribute what you'll reliably spend. Predictable expenses like glasses, orthodontia, and a known prescription regimen are ideal FSA candidates. Unpredictable big medical events are better matched to an HSA.