Which statement about FSAs is true relative to HSAs?

Which statement about FSAs is true relative to HSAs?

• A. FSAs offer tax-advantaged growth; HSAs do not
• B. FSAs and HSAs function identically
• C. FSAs are funded by post-tax dollars
• D. FSAs are funded via pre-tax reductions with limited or no carryover; HSAs may roll over year to year

Answer: (B)

The key idea is how FSAs and HSAs differ in funding and carryover. FSAs are funded through pre-tax payroll deductions, but the money is typically used within the plan year (or a very short grace period) and often can’t be carried over, meaning funds may be forfeited if not spent. HSAs, on the other hand, are owned by the employee, funded with pre-tax contributions, and the funds can roll over from year to year and even grow if invested. So the true statement about FSAs relative to HSAs is that FSAs are funded via pre-tax reductions with limited or no carryover, whereas HSAs may roll over year to year. The other points—FSAs offering tax-advantaged growth or being funded with post-tax dollars—don’t fit the typical structure of FSAs.

The key idea is how FSAs and HSAs differ in funding and carryover. FSAs are funded through pre-tax payroll deductions, but the money is typically used within the plan year (or a very short grace period) and often can’t be carried over, meaning funds may be forfeited if not spent. HSAs, on the other hand, are owned by the employee, funded with pre-tax contributions, and the funds can roll over from year to year and even grow if invested.

So the true statement about FSAs relative to HSAs is that FSAs are funded via pre-tax reductions with limited or no carryover, whereas HSAs may roll over year to year. The other points—FSAs offering tax-advantaged growth or being funded with post-tax dollars—don’t fit the typical structure of FSAs.