HSA vs HRA

The most significant difference between HSA and HRA is who funds and manages the account. The healthcare savings account can be started by an employee, an employer, both, or an individual who is self employed. A healthcare reimbursement account is only opened and accessed by the employer.

The HSA is actually a little more suitable for most people, because it offers greater advantages for the tax season. An individual must be subject to high deductibles in order to be able to qualify under the legal terms of a high deductible medical plan.

The healthcare savings plan operates just like a savings account. There has to be money in it in order for money to be withdrawn. The HRA is funded, managed, and operated by the employer. This means, when medical expenses occur and qualify for reimbursement, the employer doesn’t have to have any funds sitting in an account. He can simply write the check and make sure that bookkeeping tallies the funds under HRA, for further reference.

If an employee has an HSA at one job, and decides to move into another job, his account can go with him. Of course, the HRA is only funded by the employer, and the monies not collected or spent, simply stay with the employer.

If you’re under 65, the HSA is tax free, as is the money that you withdraw in order to pay for medical expenses. Once you have reached age 65, the terms of the plan change, and you are permitted to withdraw the funds for any reason. Any monies withdrawn for purposes other than managing health care expenses, will be taxed. All monies used for health care purposes are not taxed, even after the age of 65. You cannot ever withdraw money from an HRA for non-medical purposes.

An HSA is very much like a retirement plan. You can diversify funds, and invest within the plan, in order to maximize the money that is there. Any kind of early withdrawal will result in a 10% tax penalty, as well as become factored into your annual income, and thereby is taxable a second time.

Summary:

· HRA is funded and managed by only the employer.

· HSA is funded and managed by employer, employee, both, or the self employed.

· HSA must be funded before funds can be withdrawn.

· HRA does not need to be funded in order to withdraw funds.

· The healthcare savings account stays with the individual, regardless of moves or changes to his job.

· The money deposited and withdrawn from the HSA is not taxed.

· After 65, the funds from the HSA can be used for non-medical purposes, but they will be taxed.

· The HSA has an early withdrawal penalty.

· There is no possibility of early withdrawal, or use for non-medical purposes, with the HRA.