How to stop losing money in your FSA and maximize your HSA

Executive overview

In 2024, employees forfeited roughly 50% of their FSA contributions — an average of $441 per account — simply by not spending the money in time. FSAs operate on a use-it-or-lose-it basis; HSAs do not expire and can grow tax-free like an investment account, but most holders never invest a dollar.

Most employees are leaving hundreds of dollars in pre-tax savings on the table every year through inaction and misunderstanding.

FSA vs HSA: key differences

• FSA (Flexible Spending Account): use-it-or-lose-it; two types — healthcare and dependent care
• HSA (Health Savings Account): funds never expire; balance can be invested once a threshold (typically ~$2,000) is reached
• HSA requires enrollment in a high-deductible health plan (HDHP)
• Both reduce taxable income dollar-for-dollar on contributions

2025 contribution limits

• Healthcare FSA: $3,300/year
• Dependent care FSA: $5,000/year
• HSA individual coverage: $4,300/year
• HSA family coverage: $8,550/year
• HSA catch-up (age 55+): additional $1,000
• Limits increase almost every year — check at each open enrollment

Common mistakes

• Not enrolling at all due to confusion about how accounts work
• Assuming only doctor visits and prescriptions are eligible — hundreds of items qualify, including contact lenses, heating pads, blood pressure monitors, feminine hygiene products, and OTC medications
• Not investing HSA funds once the balance threshold is reached
• Missing the annual limit increases (HSA individual limit rose $150 from 2024 to 2025)

Summer spending opportunities

• Eligible summer items: certain sunscreens, SPF lip balms, prescription sunglasses, motion sickness medicines, first aid supplies, bug bite and allergy remedies
• Summer is a natural opportunity to accelerate FSA spending if behind on the year

Pro tips for advanced users

• Family coordination: spend FSA funds first (they expire), then let HSA grow long-term; HSA can cover a spouse's and dependents' expenses even if they're on a different plan
• Grace period hack: many FSA plans allow 2.5 months into the next year to spend remaining funds — purchases made through mid-March count against the prior year's balance
• Phantom reimbursement strategy: pay a medical expense out of pocket today, keep the receipt, and reimburse yourself from the HSA years or decades later — no time limit, fully tax-free

HSA as a wealth-building account

• Triple tax advantage: contributions go in pre-tax, grow tax-free, come out tax-free for medical expenses
• Beats traditional retirement accounts (401k and IRA withdrawals are taxed; HSA medical withdrawals are not)
• Invest excess funds in mutual funds or stocks once the threshold balance is reached