When it's time to elect annual benefits, many have the option to choose between a Health Savings Account (HSA) and a Flexible Spending Account (FSA). The two accounts are similar in that both help boost your spending power for eligible expenses with pre-tax payroll contributions and can help you save on qualified medical expenses.

However, each plan has key differences that may make one better for you than the other. To help you decide, here are three questions to ask yourself.

#1 What kind of health plan do I want?

The biggest difference between an HSA and an FSA is eligibility. To contribute to an HSA you must be enrolled in an HSA-qualified health plan, also known as a high-deductible health plan (HDHP). These plans typically have lower monthly premiums but higher deductibles, which means you pay more out-of-pocket for medical expenses before the insurance kicks in. See our article for more details.

A Flexible Spending Account (FSA) is an employer-sponsored benefit that is available with any health plan type. Unlike an HSA, you do not need to be enrolled in a specific type of health plan to be eligible for an FSA.

An FSA can be especially useful if you have anticipated medical expenses coming up and want to set aside pre-tax dollars to cover them.

#2 When do I need the money?

Another important difference is how long your funds last. FSAs are use-it-or-lose-it accounts, meaning that at the end of the plan year, any unused funds may be forfeited. Some employers offer a grace period or allow a small carryover, but in general, you need to plan your contributions carefully.

On the other hand, HSA funds never expire. Your balance rolls over year after year, and you can even build long-term health savings for the future.

Annual contribution limits are set by the IRS and may change each year. Check this page for the latest information.

Whether you have an HSA or FSA, you can use it to purchase thousands of eligible items at the HSA Store or FSA Store.

#3 Do I want to invest my money?

One of the biggest advantages of an HSA is the ability to invest your account funds. Much like a 401(k) or IRA, you can grow your HSA balance through investing, and an HSA offers unique triple-tax advantages: contributions are tax-deductible, earnings grow tax-free, and tax-free distributions for qualified medical expenses.

Many people use their HSA as a retirement account — paying for current medical expenses out of pocket while allowing their HSA balance to grow. After age 65, you can use your HSA funds for any purpose (though non-medical withdrawals are subject to income tax, similar to a traditional 401(k)).

An FSA does not have an investment option. Funds in an FSA can only be used for eligible expenses during the plan year.

Ready to learn more? Many HealthEquity members choose to invest their HSA and you can get started with as little as $1,000 in your account.

For more information, visit our Help Center.