HSAs, FSAs, and other accounts not ABLE Stuart Spielman Senior Policy Advisor and Counsel Autism Speaks

Overview The Internal Revenue Code authorizes a number of tax-advantaged savings accounts and arrangements, but they bear little resemblance to ABLE accounts. Most important, these accounts and arrangement, which are not limited to persons with disabilities, are far more limited than ABLE accounts in the kinds of qualified expenses allowed.

Health Savings Accounts (HSAs) A health savings account is a tax-advantaged account used to pay or reimburse certain medical expenses. Some benefits: Contributions may be deductible and may be excludable from gross income. Growth in the account is tax-free, and distributions may be tax-free if used to pay for qualified medical expenses. Some limits: To be eligible, an individual must be covered by a high- deductible health care plan and generally not have any other health coverage; and cannot be claimed as a dependent on someone else’s return.

Medical Savings Accounts (MSAs) A medical savings account (or Archer MSA) is a savings account program used to save for future medical expenses. MSAs were the predecessor of HSAs but are still available. Some benefits: Contributions are deductible. Growth in the account is tax free and distributions may be tax free if used to pay for qualified medical expenses. Some limits: To be eligible, an individual must be an employee of a small employer that maintains a high-deductible health care plan or a self-employed person who maintains a high-deductible health care plan; and can generally have no other health coverage.

Flexible Spending Arrangements (FSAs) A flexible spending arrangement is a voluntary salary reduction agreement used to pay for qualified medical or dependent care expenses. Some benefits: Contributions made by an employer can be excluded from an employee’s gross income. Withdrawals may be tax free if used to pay for qualified expenses. Some limits: Salary reduction contributions are limited in amount and can be used only for certain purposes. Self-employed persons are not eligible for FSAs.

Health Reimbursement Arrangements (HRAs) A health reimbursement arrangement is an employer-funded arrangement to pay for qualified medical expenses. Some benefits: Contributions made by an employer can be excluded from an employee’s gross income. Reimbursements may be tax free if used to pay for qualified medical expenses. There is no limit to the amount of money an employer can contribute to an account. Some limits: HRAs can only be used for qualified medical expenses. Self- employed persons are not eligible for HRAs.