Flexible Spending Account (FSA)
An employee-funded pre-tax account for qualified medical or dependent care expenses, traditionally use-it-or-lose-it each year (with limited carryover or grace period options).
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Practice This Concept
Compared with a flexible spending account (FSA), a feature of an Archer Medical Savings Account (MSA) is that funds not spent during the year:
Roll over and continue to accumulate, with earnings growing tax-deferred — An Archer MSA is a tax-advantaged savings account available to self-employed individuals and employees of small employers who are covered by a high-deductible plan. Unlike an FSA, unused MSA balances do not expire at year-end; they roll over, continue to earn interest, and grow tax-deferred. Withdrawals used for qualified medical expenses are not taxed, and because the account is owned by the insured, balances are not forfeited when employment changes. This carry-over and accumulation feature is a core reason MSAs are classified as consumer-driven health plan (CDHP) arrangements alongside HRAs and HSAs under AH-III.A.1b of the examination outline.
National insurance concept
Regarding the federal tax treatment of a Health Savings Account (HSA) paired with a qualifying high-deductible health plan, which statement is correct?
Contributions are tax-deductible, account earnings grow tax-free, and distributions for qualified medical expenses are tax-free. — An HSA offers the well-known 'triple tax advantage' under IRC Section 223 when it is paired with a qualifying high-deductible health plan (HDHP): contributions are deductible above the line, the account balance grows tax-deferred, and withdrawals are tax-free so long as they pay for qualified medical expenses. Unlike a flexible spending account, the HSA is owned by the individual, is fully portable, and has no use-it-or-lose-it rule, so unused funds accumulate for future health costs. Only individuals covered by a qualifying HDHP may contribute, and the account holder must not be enrolled in disqualifying coverage such as a general-purpose FSA.
National insurance concept
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