HSA vs HRA: Main Differences and Which Is Right for You

Both health savings accounts (HSAs) and health reimbursement accounts (HRAs) offer tax-advantaged ways to save for future medical expenses. But they work in very different ways.

An HSA allows you to set aside pretax money for health care costs that your health insurance plan doesn’t cover. You must have a high-deductible health plan (HDHP) to open an HSA. With this option, you own the account and can take it with you if you leave your job.

An HRA, on the other hand, is a type of account that your employer owns and funds. The company puts money into the account on your behalf, and you can use your HRA funds, tax-free, to cover qualified medical costs throughout the year. However, you can’t take the account with you if you leave your job.

If you’re looking for a way to reduce your health care costs, it’s a good idea to understand HSAs and HRAs. Then, provided you are eligible, you can decide which option is best for you and your family. There is also a chance you can opt into both types of accounts.

Differences Between an HSA and an HRA

HSAs and HRAs work differently from other types of savings accounts. Here’s how these two types of accounts compare at a glance.

	HSAs	HRAs
Owned by	Individual	Employer
Who can contribute	Individual, family members, employer	Employer only
Are contributions pretax?	Yes	Yes
Portable?	Yes	Not typically
Money can be invested for growth?	Yes	No
Need an HDHP to qualify?	Yes	No
Can I use the money for nonmedical expenses?	Yes (though you may owe taxes and/or penalties)	No

What Is an HSA?

An HSA allows employees and freelancers to put away pretax funds for future medical expenses. There is one major requirement for an HSA: You must have an HDHP. For 2026, the IRS defines an HDHP as having a deductible of at least $1,700 for an individual and $3,400 for a family. In addition, the plan’s cap on yearly out-of-pocket expenses can’t exceed $8,500 for an individual or $17,000 for a family.

Your employer may offer an HDHP with an HSA as a workplace benefit. Or, if you enroll in health insurance through the private marketplace and choose an HDHP, you can typically open an HSA with a brokerage firm or other financial institution.

There are limits on how much you can contribute to an HSA. In 2026, those limits are:

•   Up to $4,400 to an HSA for self-only coverage

•   Up to $8,750 for family coverage

•   People age 55 and over can contribute an additional $1,000 annually

Unlike a flexible spending account (FSA), which also allows you to set aside a certain amount of money pretax for medical costs, the money in the HSA isn’t a use-it-or-lose-it proposition. The funds roll over every year, so there’s no rush to spend the money. In addition, you can take an HSA with you should you leave your job.

You can use your HSA to directly pay for qualified medical expenses (typically using a debit card or via online payment), or you can collect receipts and reimburse yourself later. Any expense that the IRS considers a deductible medical expense qualifies. These include doctor visits, prescription medications, dental and orthodontic treatments, lab tests, surgeries, hospital stays, hearing aids, and eyeglasses.

While the purpose of an HSA is to cover immediate health care costs, many HSA providers allow you to invest a portion of your HSA funds in various investment vehicles, such as mutual funds, stocks, bonds, and exchange-traded funds. These investments grow tax-free. You can access unused HSA funds during retirement for nonmedical expenses, but you will pay taxes on the funds.

Recommended: What Are the Differences Between an HSA and an FSA?

Pros of an HSA

Here’s a look at some of the benefits of using an HSA:

•   Lowers your taxable income: Your employer makes your contributions on your behalf with pretax dollars, often through payroll deductions. That means the money is not included in your gross income and is not subject to federal (and in most cases, state) income taxes.

•   Tax-free withdrawals: Withdrawals from your HSA are not subject to federal (and in most cases, state) taxes if you use them for qualified medical expenses.

•   Lower premiums: To qualify for an HSA, you must have an HDHP, which means your monthly payments are likely lower than those of other types of health insurance plans.

•   Annual rollover: HSAs aren’t use-it-or-lose-it accounts. You keep your money even if you don’t spend it in the year you contributed it.

•   Money can be invested and grow tax-free: Once you reach a required minimum balance (which can range from $500 to $3,000), you can choose to invest your HSA dollars.

•   Can boost retirement savings: After the age of 65, you can withdraw the funds for any purpose, not just qualified medical expenses. Using the funds this way makes them taxable but does not carry a penalty.

•   You own the account: The money in an HSA is yours. If your employer lets you go or you change jobs, you don’t forfeit it.

Cons of an HSA

There are also some potential disadvantages to HSAs. Here are some to consider:

•   Only allowed with an HDHP: If you don’t enroll in an HDHP, you can’t open an HSA.

•   Contribution limits: You can only contribute up to $4,400 for individual coverage and up to $8,750 for family coverage in one year.

•   May come with fees: Some HSAs charge maintenance fees, investment fees, paper statement fees, and per-transaction charges. It’s a good idea to ask for a complete schedule of fees before you choose an HSA.

•   Penalties for nonqualified expenses: If you withdraw money from your HSA to pay for anything other than qualified medical expenses before you turn 65, you must pay taxes and a 20% penalty.

•   Limited investment options: You may have a limited choice of investment options within your HSA, which restricts the potential returns you can earn.

•   Investments can lose money: Any investments you make with HSA funds could cause your balance to fall if the market drops.

•   Requires careful recordkeeping: It’s crucial to maintain accurate records of your expenses and HSA transactions for tax purposes. Keeping track of the transactions can be a chore.

Recommended: How Many Savings Accounts Should I Have?

What Is an HRA?

A health reimbursement account (HRA), sometimes referred to as a health reimbursement arrangement, is a job perk that some companies offer to workers to help make health care more affordable. The employer owns and funds the account. You do not need (nor are you allowed) to make any contributions to the account.

You can use the money in an HRA to pay for medical care you’d otherwise need to pay for out of pocket. Your employer determines how much is in the HRA and for what type of medical expenses you can use the funds.

In some cases, the HRA will reimburse the health care provider directly. In others, you might use a debit card associated with the HRA or pay for expenses out of pocket and then submit them for reimbursement.

You are not taxed on the money your employer puts in your HRA, and you can withdraw the money for qualified medical expenses tax-free. However, you don’t own the account, can’t invest the money, and will lose the HRA if you leave your job (unless you choose COBRA continuing coverage).

In some cases, an employer might allow unused HRA funds to carry over from one year to the next, but they are not required to do so.

Pros of an HRA

Here’s a look at some of the key benefits of having an HRA:

•   Reduces your health care costs: You can withdraw money from the HRA to cover IRS-qualified medical expenses you’d otherwise have to pay for yourself. These may include deductibles, coinsurance, copayments, prescriptions, and more.

•   No HDHP requirement: You don’t need to enroll in an HDHP to have an HRA.

•   No contribution limits: There is no cap on how much money an employer can contribute to an HRA.

•   Some HRAs may cover insurance premiums: If you work for a small business that does not offer a group health plan, you may be able to use your HRA to purchase an individual health plan as well as cover out-of-pocket expenses.

•   The HRA doesn’t count as income: Your employer’s contributions to an HRA do not count toward your gross income. And when you file a claim for a qualified medical expense, the reimbursement is tax-free.

•   Some HRA plans allow you to roll over unused funds to the next year: Your employer determines whether or not this option will be available.

Cons of an HRA

HRAs also have some downsides. Here are some to keep in mind:

•   You can’t contribute to an HRA: This type of account is limited to whatever your employer contributes.

•   Money in an HRA cannot be invested: This means that the funds will not grow over time.

•   You may lose the money if you don’t use it: In many cases, you must spend the money in the HRA in the contribution year, or you lose it. Employers can, but do not have to, allow some funds in your HRA to carry over to the next year.

•   You can’t take it with you: Your employer owns the account, and you lose your HRA money if you leave your job unless you elect COBRA coverage.

•   Inconsistent guidelines: HRAs are not standardized. As a result, an HRA offered by one company may have very different rules from one at another company, which can lead to confusion.

•   Lack of availability: Not all companies offer HRAs. Also, self-employed people cannot participate in an HRA.

Which One Is Right for You?

In some cases, you may not have to decide if an HRA or an HSA is better. Many companies only offer one or the other, and if you’re self-employed, you won’t have access to an HRA.

If your employer offers both an HDHP and an HSA, as well as an HRA, you might be able to have both an HSA and an HRA. Generally, this is only possible if the employer’s HRA is limited in scope, such as one that only covers vision and dental expenses or just insurance premiums.

In this scenario, you may be able to contribute money into an HSA, where it can grow tax-free and potentially boost your retirement savings, while using the HRA to cover the cost of certain medical expenses. You can’t double-dip, however, meaning you’re not allowed to get reimbursed by both accounts for the same expense.

In the end, whether to choose an HRA vs. an HSA will depend on which health savings plan (or plans) you are eligible to access and what type of health insurance you have.

The Takeaway

HRAs and HSAs can both reduce the cost of medical care that your health plan doesn’t cover, but they do so in different ways. The main difference between HRAs and HSAs is that you own and fund your HSA, while your employer owns and funds your HRA and can impose more limitations on it.

Whether your employer offers an HRA or an HSA, it’s a valuable workplace benefit. Both types of accounts help ensure you have funds you can tap to cover copays, high deductibles, and other out-of-pocket medical expenses.

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FAQ

Is it better to have an HRA or HSA?

It depends. Employers create and fund health reimbursement accounts (HRAs) as a workplace benefit, and they cover a wide range of medical expenses. Unfortunately, funds are typically forfeited if you leave the company.

A health savings account (HSA) is available with high-deductible health plans and allows you to contribute pretax dollars, grow the balance tax-free, and use the funds for qualified medical expenses. HSAs are portable and roll over annually.

The best option depends on your employment status, health insurance plan, and preference for control over the funds.

Can I use both an HRA and HSA?

Generally, having a health reimbursement account (HRA) disqualifies you from contributing to a health savings account (HSA). However, certain types of HRAs, such as limited-purpose HRAs, can be paired with an HSA. It’s essential to check with your employer and read your plan documents to understand the specific terms and ensure compliance with IRS guidelines.

Can I have an HSA if my spouse has an HRA?

Not typically, but there are some exceptions. If you have a high-deductible health plan and your spouse’s health reimbursement account (HRA) covers premiums only or just certain types of medical expenses (such as only vision and dental), you may be eligible to contribute to a health savings account (HSA). You’ll want to verify the specific terms of the HRA to ensure compliance with HSA eligibility rules.

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Photo credit: iStock/Nudphon Phuengsuwan

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