HSA/FSA

How to Maximize Your HSA and FSA Savings This Open Enrollment Season

It’s time to start planning for health coverage — and savings

October 31, 2024
Sam O'Keefe Co-Founder and CEO of Flex
Sam O'Keefe
Co-founder & CEO of Flex
Flex - Open-Enrollment Period: Planning Your HSA and FSA for 2025
Flex - Open-Enrollment Period: Planning Your HSA and FSA for 2025

Overview

Overview

Overview

Open enrollment for health insurance is just around the corner.

That means it’s also time to sign up for a Health Savings Account (HSA) or Flexible Spending Account (FSA) in order to take advantage of these tax-saving tools for 2025.

Unfortunately, many people don’t make the most of these accounts, or even know about them — according to a report from 2020, about 1 in 3 adults who are eligible for an HSA have not opened one. Further, among HSA owners, 55% contributed no money to their account. This is a huge missed opportunity to reduce their taxable income and save on healthcare expenses.

If you like saving on taxes and medical expenses, we’ll share tips about how to open an account (or keep the one you have) and how to make the most of it this next year.

What are HSAs and FSAs?

Health Savings Accounts and Flexible Spending Accounts are tax-advantaged savings accounts that help you to pay for healthcare expenses, including some that insurance might not cover. You can think of them as a complementary healthcare fund that lets you put money away for out-of-pocket medical fees while also reducing your taxable income.

You can use these accounts to pay for common medical expenses like prescription medications, copays, and vision and dental costs. However, the hidden value of HSAs and FSAs is that they can also be used for items not typically covered by health insurance, like fitness and sleep trackers, baby monitoring devices, air purifiers, and a whole host of other items.

We won’t cover the process of obtaining a Letter of Medical Necessity and how to use your HSA or FSA for non-standard medical expenses, but the important point is that HSAs and FSAs allow you to be proactive about your health.

Tax advantages of HSAs and FSAs

These specialty savings accounts are tax-advantaged which means that you don’t pay taxes for money you put in or take out (as long as it’s for a qualified medical expense). 

The net-net is that on average, consumers save 30 to 40% percent on purchases they make with their HSA or FSA

You don’t have to spend the funds to reduce your tax bill — you can save by simply putting money in your account. According to TurboTax, if you made $50,000 this year and your tax rate is 30%, contributing $2,000 to your HSA or FSA account will have saved you $600 on taxes.

How Do You Open an HSA and FSA?

There are different requirements to open an HSA vs. an FSA, which we’ll review below.

Open enrollment period: What to know

The open enrollment period typically starts on November 1 and runs to January 15, but dates can vary by state.

If you use the Health Insurance Marketplace to find healthcare coverage — whether via HealthCare.gov or your state-based marketplace — this is when you can re-enroll or make changes to your existing plan, or sign up for a new plan. 

If you get insurance from your employer, the company sets the enrollment period, though it is typically in the fall.

Opening an HSA

To open an HSA, you must be enrolled in an HSA-qualified high-deductible health plan (HDHP). 

Because these types of health insurance plans have cheaper premiums but higher out-of-pocket expenses, HSAs can help reduce your expenses.

Once you are enrolled in an HDHP, you can start the process of opening an account. Some employers will offer an HSA (and potentially help contribute to it), or you can open one on your own. You can look at various HSA providers (such as Lively, HealthEquity, or Fidelity), see if your health insurance company recommends one via a partner, or even ask your bank.

When it comes to timing, you can actually enroll in an HSA at any time.

Opening an FSA

FSAs are employer-sponsored benefit plans. This means that your employer must offer FSAs as an option (and you cannot enroll for one on your own). They differ from HSAs in that you do not need to be on a high-deductible health plan and you have to sign up for an FSA during Open Enrollment. 

Contribution limits for 2025

Part of the process for opening an account means choosing your contribution amount for the upcoming year. 

HSA contribution limits:

In 2025, you can contribute up to $4,300 if you are covered as an individual or $8,550 if you elect to have coverage for your family.

Note that you can choose to contribute however and whenever you want. Some may make a lump sum contribution while others choose to make recurring contributions throughout the year (employers may even offer an option to have it automatically taken out of your paycheck).

Can you change your HSA contribution at any time?

In contrast to FSAs, HSAs allow you to change your contribution at any time, but no more than once a month. 

FSA contribution limits:

The maximum plan contribution limit for 2025 is $3,300, an increase of $100 from 2024.

Typically, you have to designate how much you will contribute when you sign up for your plan with your employer and you cannot change the amount. 

There are some exceptions if you experience a qualifying event. These include a change in marital status, number of dependents, or employment, and other cases that may be outlined in your specific FSA plan.

What to Think about When Choosing an HSA or FSA

Once you are qualified for an HSA or FSA, there are other considerations to be mindful of:

  • You can only have one or the other: It’s possible you’ll find yourself in the position of choosing between an employer-sponsored FSA or signing up for an HSA on your own. You’ll want to review the positives and negatives of each because you can only be enrolled in one account. In general, HSAs offer more flexibility.

  • Does your employer contribute? Some employers offer contribution matching, which is a great way to maximize savings.

  • Fees: Some HSAs may charge for things like opening or closing the account or have a monthly maintenance fee. 

  • Banking options and features: Debit cards are common, but not guaranteed. Other services like online banking or an app are other things to consider. 

  • Deposits: How will you make pre-tax deposits? This can vary between providers.

  • Investment options (if you have an HSA): Some providers offer this as a built-in service.

  • Rollovers, carryovers, and grace periods: HSAs and FSAs run on a year-to-year basis, but FSAs have a “use-it-or-lose-it” provision, meaning that the funds expire at the end of the year. Some plans offer ways to extend the usage of your funds, but not all do.

Key differences between an HSA and FSA

There are a few important distinctions between Health Savings Accounts and Flexible Spending Accounts, namely who owns the account and whether money rolls over into the next plan year.

This table helps highlight some of the key differences:


How to Make the Most of Your HSA or FSA in 2025

It pays, or rather, saves, to plan ahead when it comes to your HSA or FSA. Here are a few things to keep in mind when thinking about the year ahead (or beyond).

Use-it-or-lose-it deadlines

We hinted at this above, but FSAs come with a use-it-or-lose-it provision, which means that if you don’t use your funds by the end of the plan year (typically December 31), you lose them. By planning for how you will use your funds in the new year, you can make sure you actually use your hand earned dollars. Speaking of which…

Plan ahead

Historically, when it came to health insurance, most people would look at their past year’s spending at the doctor’s office, or think about any surgeries or specialists they may need in the coming year, and choose health insurance accordingly. If you were of a certain age and certain health, you could reasonably estimate what your upcoming healthcare costs might be, but you were limited to what your insurance covers.

HSAs and FSAs provide a new opportunity to be proactive about your health, allowing you to pay for products or services not typically covered by insurance if they address a specific medical condition. Big ticket items like a specialty mattress for back problems or semaglutide (Ozempic or Wegovy) for weightloss, and even things like at-home genetic testing or body composition scales, become purchases you can plan to pay for with your health savings account. 

If you’d like to do a little research for next year, you can find a range of HSA and FSA eligible items in our marketplace

Build a healthcare safety net

Life has a way of surprising you, and unfortunately, when it comes to healthcare, surprises can be expensive. In fact, the average American spends nearly $6,000 a year on out-of-pocket health-care costs, according to the latest consumer spending data from the Bureau of Labor Statistics.

One way to use your HSA (in particular) or FSA is to keep a portion of the funds for an emergency should a health crisis arise.

Reduce your annual tax bill

Because money you put into your accounts is pre-tax, it lowers your overall taxable income at the end of the year. That means that by contributing you will pay less taxes no matter what, and you may even be able to move into a lower tax bracket, depending on your income and how much you contribute.

Consider investing

The unique feature of HSAs is that you can invest the funds. If you can afford it, this is a great way to make the most of the account. Many people will build their HSA over their career and use the funds for retirement healthcare costs. On average, a couple will need $300,000+ to cover out-of-pocket medical expenses in retirement, according to recent estimates from Investopedia.

Delay reimbursement 

Again, HSAs provide a useful way to offset future costs. To begin, you are permitted to take a distribution from your HSA at any time according to the IRS. This means that you can pay-out-of-pocket today, invest your HSA, let it grow over the years, and then reimburse yourself years later for the qualified medical expense (as long as you have the receipts).

Avoid using funds for nonqualified expenses

This is a big one. 

If you use your HSA or FSA to pay for non-qualified medical expenses before the age of 65, you will have to pay ordinary tax on the withdrawal plus a 20% penalty. That’s a double-whammy.

However, after you turn 65, the equation changes: While you can still use HSA funds for medical expenses tax-free, non-medical expenses become fair game without the usual 20% penalty.

Plan to Save Big With Your HSA or FSA 

HSAs and FSAs aren’t quite free money, but they’re not too far off either. As unique tax saving and investment tools, a little knowledge and planning can help you maximize your healthcare funds for years to come.

Open enrollment for health insurance is just around the corner.

That means it’s also time to sign up for a Health Savings Account (HSA) or Flexible Spending Account (FSA) in order to take advantage of these tax-saving tools for 2025.

Unfortunately, many people don’t make the most of these accounts, or even know about them — according to a report from 2020, about 1 in 3 adults who are eligible for an HSA have not opened one. Further, among HSA owners, 55% contributed no money to their account. This is a huge missed opportunity to reduce their taxable income and save on healthcare expenses.

If you like saving on taxes and medical expenses, we’ll share tips about how to open an account (or keep the one you have) and how to make the most of it this next year.

What are HSAs and FSAs?

Health Savings Accounts and Flexible Spending Accounts are tax-advantaged savings accounts that help you to pay for healthcare expenses, including some that insurance might not cover. You can think of them as a complementary healthcare fund that lets you put money away for out-of-pocket medical fees while also reducing your taxable income.

You can use these accounts to pay for common medical expenses like prescription medications, copays, and vision and dental costs. However, the hidden value of HSAs and FSAs is that they can also be used for items not typically covered by health insurance, like fitness and sleep trackers, baby monitoring devices, air purifiers, and a whole host of other items.

We won’t cover the process of obtaining a Letter of Medical Necessity and how to use your HSA or FSA for non-standard medical expenses, but the important point is that HSAs and FSAs allow you to be proactive about your health.

Tax advantages of HSAs and FSAs

These specialty savings accounts are tax-advantaged which means that you don’t pay taxes for money you put in or take out (as long as it’s for a qualified medical expense). 

The net-net is that on average, consumers save 30 to 40% percent on purchases they make with their HSA or FSA

You don’t have to spend the funds to reduce your tax bill — you can save by simply putting money in your account. According to TurboTax, if you made $50,000 this year and your tax rate is 30%, contributing $2,000 to your HSA or FSA account will have saved you $600 on taxes.

How Do You Open an HSA and FSA?

There are different requirements to open an HSA vs. an FSA, which we’ll review below.

Open enrollment period: What to know

The open enrollment period typically starts on November 1 and runs to January 15, but dates can vary by state.

If you use the Health Insurance Marketplace to find healthcare coverage — whether via HealthCare.gov or your state-based marketplace — this is when you can re-enroll or make changes to your existing plan, or sign up for a new plan. 

If you get insurance from your employer, the company sets the enrollment period, though it is typically in the fall.

Opening an HSA

To open an HSA, you must be enrolled in an HSA-qualified high-deductible health plan (HDHP). 

Because these types of health insurance plans have cheaper premiums but higher out-of-pocket expenses, HSAs can help reduce your expenses.

Once you are enrolled in an HDHP, you can start the process of opening an account. Some employers will offer an HSA (and potentially help contribute to it), or you can open one on your own. You can look at various HSA providers (such as Lively, HealthEquity, or Fidelity), see if your health insurance company recommends one via a partner, or even ask your bank.

When it comes to timing, you can actually enroll in an HSA at any time.

Opening an FSA

FSAs are employer-sponsored benefit plans. This means that your employer must offer FSAs as an option (and you cannot enroll for one on your own). They differ from HSAs in that you do not need to be on a high-deductible health plan and you have to sign up for an FSA during Open Enrollment. 

Contribution limits for 2025

Part of the process for opening an account means choosing your contribution amount for the upcoming year. 

HSA contribution limits:

In 2025, you can contribute up to $4,300 if you are covered as an individual or $8,550 if you elect to have coverage for your family.

Note that you can choose to contribute however and whenever you want. Some may make a lump sum contribution while others choose to make recurring contributions throughout the year (employers may even offer an option to have it automatically taken out of your paycheck).

Can you change your HSA contribution at any time?

In contrast to FSAs, HSAs allow you to change your contribution at any time, but no more than once a month. 

FSA contribution limits:

The maximum plan contribution limit for 2025 is $3,300, an increase of $100 from 2024.

Typically, you have to designate how much you will contribute when you sign up for your plan with your employer and you cannot change the amount. 

There are some exceptions if you experience a qualifying event. These include a change in marital status, number of dependents, or employment, and other cases that may be outlined in your specific FSA plan.

What to Think about When Choosing an HSA or FSA

Once you are qualified for an HSA or FSA, there are other considerations to be mindful of:

  • You can only have one or the other: It’s possible you’ll find yourself in the position of choosing between an employer-sponsored FSA or signing up for an HSA on your own. You’ll want to review the positives and negatives of each because you can only be enrolled in one account. In general, HSAs offer more flexibility.

  • Does your employer contribute? Some employers offer contribution matching, which is a great way to maximize savings.

  • Fees: Some HSAs may charge for things like opening or closing the account or have a monthly maintenance fee. 

  • Banking options and features: Debit cards are common, but not guaranteed. Other services like online banking or an app are other things to consider. 

  • Deposits: How will you make pre-tax deposits? This can vary between providers.

  • Investment options (if you have an HSA): Some providers offer this as a built-in service.

  • Rollovers, carryovers, and grace periods: HSAs and FSAs run on a year-to-year basis, but FSAs have a “use-it-or-lose-it” provision, meaning that the funds expire at the end of the year. Some plans offer ways to extend the usage of your funds, but not all do.

Key differences between an HSA and FSA

There are a few important distinctions between Health Savings Accounts and Flexible Spending Accounts, namely who owns the account and whether money rolls over into the next plan year.

This table helps highlight some of the key differences:


How to Make the Most of Your HSA or FSA in 2025

It pays, or rather, saves, to plan ahead when it comes to your HSA or FSA. Here are a few things to keep in mind when thinking about the year ahead (or beyond).

Use-it-or-lose-it deadlines

We hinted at this above, but FSAs come with a use-it-or-lose-it provision, which means that if you don’t use your funds by the end of the plan year (typically December 31), you lose them. By planning for how you will use your funds in the new year, you can make sure you actually use your hand earned dollars. Speaking of which…

Plan ahead

Historically, when it came to health insurance, most people would look at their past year’s spending at the doctor’s office, or think about any surgeries or specialists they may need in the coming year, and choose health insurance accordingly. If you were of a certain age and certain health, you could reasonably estimate what your upcoming healthcare costs might be, but you were limited to what your insurance covers.

HSAs and FSAs provide a new opportunity to be proactive about your health, allowing you to pay for products or services not typically covered by insurance if they address a specific medical condition. Big ticket items like a specialty mattress for back problems or semaglutide (Ozempic or Wegovy) for weightloss, and even things like at-home genetic testing or body composition scales, become purchases you can plan to pay for with your health savings account. 

If you’d like to do a little research for next year, you can find a range of HSA and FSA eligible items in our marketplace

Build a healthcare safety net

Life has a way of surprising you, and unfortunately, when it comes to healthcare, surprises can be expensive. In fact, the average American spends nearly $6,000 a year on out-of-pocket health-care costs, according to the latest consumer spending data from the Bureau of Labor Statistics.

One way to use your HSA (in particular) or FSA is to keep a portion of the funds for an emergency should a health crisis arise.

Reduce your annual tax bill

Because money you put into your accounts is pre-tax, it lowers your overall taxable income at the end of the year. That means that by contributing you will pay less taxes no matter what, and you may even be able to move into a lower tax bracket, depending on your income and how much you contribute.

Consider investing

The unique feature of HSAs is that you can invest the funds. If you can afford it, this is a great way to make the most of the account. Many people will build their HSA over their career and use the funds for retirement healthcare costs. On average, a couple will need $300,000+ to cover out-of-pocket medical expenses in retirement, according to recent estimates from Investopedia.

Delay reimbursement 

Again, HSAs provide a useful way to offset future costs. To begin, you are permitted to take a distribution from your HSA at any time according to the IRS. This means that you can pay-out-of-pocket today, invest your HSA, let it grow over the years, and then reimburse yourself years later for the qualified medical expense (as long as you have the receipts).

Avoid using funds for nonqualified expenses

This is a big one. 

If you use your HSA or FSA to pay for non-qualified medical expenses before the age of 65, you will have to pay ordinary tax on the withdrawal plus a 20% penalty. That’s a double-whammy.

However, after you turn 65, the equation changes: While you can still use HSA funds for medical expenses tax-free, non-medical expenses become fair game without the usual 20% penalty.

Plan to Save Big With Your HSA or FSA 

HSAs and FSAs aren’t quite free money, but they’re not too far off either. As unique tax saving and investment tools, a little knowledge and planning can help you maximize your healthcare funds for years to come.

Flex is the easiest way for direct to consumer brands and retailers to accept HSA/FSA for their products. From fitness and nutrition, to sleep and mental health, Flex takes a holistic view of healthcare and enables consumers to use their pre-tax money to do the same.