HSA vs HRA: Which One Is Right For You?


Healthcare is a major expense for the majority of Americans. Both Health Reimbursement Arrangements (HRAs) and Health Savings Accounts (HSAs) provide assistance with health care costs, but they work differently. We will cover both HSAs and HRAs in depth to help you make an informed decision about which one may be right for you.

Understanding HSAs and HRAs

Health Savings Accounts (HSAs) and Health Reimbursement Arrangements (HRAs) are both types of tax-advantaged accounts designed to help individuals cover qualified medical expenses. However, there are significant differences between the two in terms of eligibility, funding sources, and account ownership.

What is an HSA?

An HSA, or health savings account, is owned by the individual. It is an account that you can draw from to pay for eligible medical expenses. Contributions are tax-deductible and it is available to those who have a high deductible health plan. Both the employee and employer can contribute to an HSA. It is owned by you so if you leave your job then you will take your HSA with you. 

What is an HRA?

An HRA, or health reimbursement arrangement, is run by your employer and it offers reimbursement for medical expenses that you pay for first.  Employees can claim a tax deduction for these reimbursements. If you leave your job, then you cannot take the HRA with you. 

What am I eligible for?

To be eligible for an HSA you must meet the following criteria:

  1. You must have a high deductible health plan that is HSA-eligible.
  2. You can’t have Medicare or any other non-HDHP health insurance.
  3. You cannot have a FSA account.
  4. You can’t be a dependent on someone else’s tax return.

All employees are eligible for an HRA if an employer offers it. HDHP members who are not eligible for an HSA are eligible for an HRA.

How much money can I put into an HSA and HRA?

In 2024, the HSA limit is

  • Up to $4,150 to an HSA for self-only coverage
  • Up to $8,300 for family coverage
  • The annual catch-up contribution for individuals age 55 or older is $55.

The HRA limit for 2024 depends on the type of HRA your employer uses. The employer decides the amount of money allocated to the HRA. Contributions to an HRA are solely made by the employer, and individuals are unable to contribute to it themselves.

What’s the difference between an HSA vs HRA?

The major difference between an HSA and HRA is that you own an HSA and your employer owns the HRA. You can make contributions to an HSA and may have the option to invest those contributions but you can’t do that with an HRA. The below table outlines the key differences.

HSA vs HRA Differences

Health Savings Account (HSA)Health Reimbursement Arrangement (HRA)
Who’s eligible?Must have high deductible health insurance planIf your company offers it
Who funds it?Funded by yourself, your employer, or bothFunded and managed by your employer. You cannot put your own money into it.
Do I need to have a HDHP as well?Must be paired with a High Deductible Health Plan (HDHP)Can be free-standing
How do I access funds?Debit card, or request reimbursementMust submit claims for reimbursement
What medical expenses does it cover?Covers a wide range of qualified medical expenses. This doesn’t include paying for premiums.Less medical expenses are covered. However, paying for premiums is included.
Are there contribution limits?The contribution limits are regulated by the IRS. The maximum contribution for 2024 is $4,150 for yourself and $8,300 for families. The annual “catch-up” contribution amount for individuals age 55 or older is $1,000.The contribution limits vary and are set by the employer.
Can I invest my funds?HSA money can be invested and cangrow tax-free.HRA money cannot be invested.
What happens if I don’t use the funds?No deadline on when to use funds. If you pass away, unused HSA money can go to your beneficiaries.You will lose the funds if you don’t use them
What happens if I leave my job?If you leave your job, you can take your HSA with you.You can’t take an HRA with you when you leave your job. It belongs to the employer.
Are there any tax advantages?Contributions are tax-deductible. Account holders can also build up their HSA by earning tax-free interest as well as tax-free returns from investing their funds.It's a tax-deductible expense for the company. It’s not considered taxable income to an employee.

Is it better to have HSA or HRA? 

When choosing between an HSA and HRA, it’s essential to consider your individual healthcare needs, financial situation, and preferences. If you value ownership, portability, and the potential for investment growth, an HSA may be the preferred option. Alternatively, if you prioritize employer contributions, simplicity, and immediate access to funds, an HRA may better suit your needs.

We will outline the advantages and disadvantages to both below. 

HSA Advantages

  • You own and control the HSA: This means that if you change jobs then you still keep your HSA.
  • You can open without an employer: If you have a HDHP then you can open an HSA without an employer.
  • You can contribute your own money: You can contribute money to an HSA up to the annual contribution limits for that year. You don’t have to rely on an employer.
  • Tax benefits: Contributions are tax-deductible, money in your HSA grows tax-free and money can be withdrawn from your account for qualifying medical expenses without incurring any tax penalties. 
  • You can invest your HSA: Investing your HSA means that you can grow your account over time.

HSA Disadvantages

  • Contribution limits 2024: The contribution limit for HSAs is low. The HSA contribution limit for 2024 is $4,150 for single coverage and $8,300 for family coverage. There is an additional $1,000 catch-up contribution for account holders age 55 or older. 
  • Limited investment options (for some HSA providers).
  • You can only contribute to a HSA if you have an HSA-eligible HDHP: For 2024, HSA-linked HDHPs must have an individual deductible of at least $1,600, or a family deductible of at least $3,200.

(Don’t forget to download the guide on ‘Will My Distribution From My HSA Be Tax & Penalty-Free?‘ if you haven’t already).

HRA Advantages

  • Employers contribute: Employers contribute money to an HRA to cover your health costs. You don’t have to make your own contributions.
  • No contribution limit: There’s no maximum annual limit on how much employers can contribute but some HRA plans do have a cap. 
  • Not taxable to you: Money your employer puts into your HRA is not taxable for you.

HRA Disadvantages 

  • You cannot contribute to an HRA: You have to rely on the contributions from your employer. 
  • Your employer owns the account: If you leave your job then you also lose your HRA.
  • Money in an HRA cannot be invested: The money cannot grow over time and you will lose it if you don’t spend it during that year.

How do I enroll in an HRA or HSA?

Enrolling in a HRA or a HSA typically involves several steps. Here’s a general guide on how to enroll:

  • 1. Check eligibility:

    • Determine if you are eligible for an HRA or HSA. Eligibility requirements may vary depending on factors such as your employment status, the type of health insurance plan you have, and any other criteria set by your employer or plan administrator.

    2. Review plan information:

    • Understand the specifics of the HRA or HSA being offered. This includes details such as contribution limits, covered expenses, employer contributions (if applicable), and any other plan features.

    3. Enrollment period:

    • Your employer may have specific enrollment periods during which you can sign up for an HRA or HSA. This often coincides with your employer’s open enrollment period, during which you can make changes to your benefits for the upcoming plan year.

    4. Complete enrollment forms:

    • Your employer or plan administrator will provide you with enrollment forms that you need to complete. These forms may include personal information such as your name, address, Social Security number, and other details required to set up the account.

    5. Make contribution elections (for HSA):

    • If you are enrolling in an HSA, you may need to decide how much you want to contribute to the account. This can typically be done through payroll deductions or direct contributions to the HSA provider.

    6. Submit forms and documentation:

    • Submit the completed enrollment forms and any required documentation to your employer or plan administrator by the specified deadline. This may include providing proof of eligibility or other supporting documents.

    7. Receive confirmation:

    • Once your enrollment is processed, you should receive confirmation of your participation in the HRA or HSA. This may include details such as your account number, how to access your funds, and any other relevant information.

    8. Start using your account:

    • Once your HRA or HSA is active, you can begin using it to pay for eligible medical expenses. Be sure to familiarize yourself with the rules and guidelines for using your account, including what expenses are covered and how to submit reimbursement claims if applicable.

Can I roll over unused funds in my HRA or HSA?

Yes, both Health Reimbursement Arrangements (HRAs) and Health Savings Accounts (HSAs) allow for rollover of unused funds, but there are some differences between the two:

  1. HRA (Health Reimbursement Arrangement):

    • Rollover of unused funds depends on the plan design set by the employer. Some HRAs may allow rollover of unused funds at the end of the plan year, while others may not.
    • If rollover is allowed, the unused funds typically roll over to the next plan year, allowing you to use them for eligible medical expenses.
    • It’s important to check your specific HRA plan documents or contact your HR department for details on rollover provisions.

  2. HSA (Health Savings Account):

    • HSAs are designed to be individually owned, so the funds belong to you, not your employer. Therefore, any unused funds in an HSA automatically rollover from year to year without expiration.
    • There are no time limits on when you can use the funds in your HSA, as long as they are used for qualified medical expenses.
    • Additionally, HSAs offer the advantage of tax-free growth, meaning any unused funds can continue to grow over time, providing a valuable resource for future medical expenses.

In both cases, it’s essential to review the specific terms of your plan to understand any limitations or restrictions on rollover provisions. 

Common HSA vs HRA Questions

Yes, you can have both an HSA and HRA. However in order to have both, you must have an HSA-qualified HDHP and not be covered under other health insurance that is not an HDHP.

An HSA has some important benefits that HRAs don't. If your employer is offering an HRA then it can be worth having but you should also consider an HSA if you can afford it. An HSA can offer you greater coverage of eligible expenses and you could also use it as additional retirement savings.

No, you cannot take an HRA with you if you change jobs. HRA (Health Reimbursement Arrangement) benefits are provided and funded solely by your employer. When you leave your job, you typically lose access to the funds in your HRA. However, there are some exceptions where employers may offer options such as a rollover or conversion of unused HRA funds into another type of health benefit, but this is not common practice. It's essential to review your employer's policies regarding HRA benefits when changing jobs to understand what options, if any, are available to you.

Yes, both HRA and HSA funds can typically be used to pay for dental care expenses. Dental care expenses, including routine check-ups, cleanings, X-rays, fillings, braces, and other dental procedures, are generally considered qualified medical expenses eligible for reimbursement from both HRA and HSA funds. However, it's essential to review the specific terms and conditions of your HRA or HSA plan to ensure that dental care expenses are covered and eligible for reimbursement. Additionally, keep in mind that you may need to provide documentation, such as receipts or invoices, to substantiate dental care expenses when seeking reimbursement from your HRA or HSA.

Both HRAs and HSAs generally allow you to use funds to pay for qualified medical expenses for your dependents. However, it's crucial to review the specific terms and guidelines of your plan to ensure compliance with IRS regulations and your plan's rules regarding eligible expenses.

Yes, you can typically invest the funds in your Health Savings Account (HSA) once your account balance reaches a certain threshold. Many HSA providers offer investment options, such as mutual funds, exchange-traded funds (ETFs), stocks, and bonds, which allow you to potentially grow your HSA funds over time.

Reduce your healthcare expenses with a HSA or a HRA

The decision between an HSA and HRA depends on your specific circumstances and preferences. If you value individual ownership, portability, and potential investment growth, an HSA may be the right choice. On the other hand, if your employer offers an HRA with attractive benefits and you prefer employer-funded accounts, an HRA could be a suitable option.

Ultimately, both an HSA or HRA can help make your medical care less expensive. Make sure that you reach out to your employer to see what options are available to you.

If you are interested in a comprehensive financial plan, schedule a free discovery call  with one of our fee-only financial planners today.

Best Financial Planner Washington DC

Alvin Carlos, CFP®, CFA is an investment advisor and fee-only financial planner, in Washington, D.C that works with clients across the country. He has a Master’s degree in International Relations from SAIS-Johns Hopkins. Alvin is a partner of District Capital, a financial planning firm designed to help professionals in their 30s and 40s achieve their financial goals through smart investing, reducing taxes, retirement planning, and maximizing their money. Schedule a free discovery call to learn how we can help elevate your finances.


District Capital is an independent, fee-only financial planning firm. We help professionals and entrepreneurs in their 30s and 40s elevate their finances and maximize their money. We are based in Washington, D.C and we work with people virtually nationwide.

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